Business losses from incriminating material under section 153A can be carried forward and set off against future profits

ITAT Ahmedabad held that business losses from incriminating material discovered during search proceedings under section 153A could be carried forward and set off against future profits from the same source. The tribunal ruled that when incriminating material reveals both income and losses, the losses must be considered alongside positive income for complete assessment. The court distinguished this from fresh claims, noting that losses emanating from incriminating material are integral to proper income computation and cannot be treated in isolation. Additionally, the tribunal upheld deletion of additions under section 68, finding that credits in foreign bank accounts were adequately explained through portfolio statements, dividend records, and reconciliations, with evidence showing proper declaration under Black Money Act.

---

---

Issues Involved:
1. Disallowance of business losses and their carry forward.
2. Addition of unexplained credits in the foreign bank account under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Business Losses and Their Carry Forward:

Background:
- The assessee was subjected to a search action under Section 132 of the Income Tax Act on 12/02/2015, revealing a foreign bank account in Merrill Lynch Bank, New York.
- Notices under Section 153A were issued, and returns were filed for Assessment Years (AY) 2009-10 to 2014-15.
- The assessee disclosed income from various sources, including business and profession, with losses in AY 2009-10 and 2010-11 carried forward to subsequent years.

Assessing Officer's (AO) Stand:
- The AO disallowed the losses and their carry forward, arguing:
1. The assessee had denied ownership of the foreign bank account.
2. Losses not claimed in the original returns filed under Section 139(1) cannot be claimed in returns filed under Section 153A.
3. The Black Money Act precludes the allowance of such losses.

Contentions by Assessee:
- The assessee argued that returns filed under Section 153A should be treated as returns filed under Section 139, allowing the carry forward and set off of losses.
- Cited judicial precedents supporting that returns under Section 153A can claim deductions as if filed under Section 139.

Tribunal's Findings:
- The Tribunal agreed with the CIT(A) that:
1. The foreign bank account was accepted as belonging to the assessee, evidenced by the acceptance of profits in subsequent years and disclosure under the Black Money Act.
2. The Black Money Act does not override the Income Tax Act regarding the allowance of losses.
3. Returns filed under Section 153A are to be treated as returns filed under Section 139 for the purpose of claiming losses.

Conclusion:
- The Tribunal upheld the CIT(A)’s decision to allow the carry forward and set off of business losses, rejecting the AO's disallowance.

2. Addition of Unexplained Credits in the Foreign Bank Account Under Section 68:

Background:
- The AO added credits in the foreign bank account as unexplained under Section 68, totaling substantial amounts across various assessment years.

Assessing Officer's (AO) Stand:
- The AO argued that the assessee failed to satisfactorily explain certain credits, particularly transactions with M/s Prime Trade Ltd.

Contentions by Assessee:
- The assessee provided detailed reconciliations and explanations for all credits, including:
1. Bank statements and portfolio statements.
2. Computation of gains/losses from securities transactions.
3. Evidence of subsequent reversal of incorrect credits by the bank.
4. Disclosure of certain credits under the Black Money Act.

CIT(A)’s Findings:
- The CIT(A) found that:
1. The credits were already part of the gross business receipts and duly accounted for in the returns.
2. The AO’s addition led to double taxation.
3. The assessee's explanations and reconciliations were satisfactory, and the AO’s adverse inference was without basis.

Conclusion:
- The Tribunal upheld the CIT(A)’s order deleting the additions under Section 68, agreeing that the credits were satisfactorily explained and already included in the business income.

Final Judgment:
- The Tribunal dismissed all appeals by the Revenue, affirming the CIT(A)’s decisions on both the disallowance of business losses and the addition of unexplained credits.

---