Tribunal allows partial appeal, sets off additions against claimed losses under Sections 69 & 68

The Tribunal partially allowed the appeal, directing the additions under Sections 69 and 68 to be set off against the assessee's claimed losses, following CBDT Circular No. 11/2019. Emphasizing the lack of evidence linking seized documents to the assessee, it upheld the principle of setting off losses against such additions for assessment years before 2017-18.

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Issues Involved:
1. Addition of Rs. 26,68,500/- under Section 69 of the Income Tax Act, 1961.
2. Addition of Rs. 85,000/- under Section 69.
3. Non-availability of depreciation set-off against additions confirmed under Section 69.
4. Validity of additions considering the business commencement date.

Issue-wise Detailed Analysis:

1. Addition of Rs. 26,68,500/- under Section 69 of the Income Tax Act, 1961:
The assessee contested the addition of Rs. 26,68,500/- made under Section 69 based on seized documents found from an employee's residence. The assessee argued that these documents were related to the employee’s independent construction business and not the assessee-company. The Assessing Officer did not accept this explanation due to a lack of documentary evidence. The CIT (A) confirmed the addition under Section 69, stating that the payments were towards capital-work-in-progress. However, the Tribunal noted that the documents were not found on the assessee’s premises, and the presumption under Section 132(4A) read with Section 292C could not be drawn against the assessee. As such, there was no concrete evidence linking the seized documents to the assessee-company.

2. Addition of Rs. 85,000/- under Section 69:
The addition of Rs. 85,000/- was made based on cash found during a search operation. The assessee failed to provide a satisfactory explanation for the cash found. The CIT (A) confirmed this addition under Section 68 due to the absence of any explanation from the assessee. The Tribunal upheld this addition, noting the lack of evidence or explanation from the assessee regarding the source of the cash.

3. Non-availability of depreciation set-off against additions confirmed under Section 69:
The assessee argued that the losses, including depreciation, should be set off against the additions made under Section 69. The CIT (A) directed the Assessing Officer to calculate the depreciation allowance as per Section 32(1) read with Explanation 5 of the Act but held that the loss would not be available for set-off against the addition confirmed under Section 69. The Tribunal referred to CBDT Circular No. 11/2019, which clarified that for assessments prior to the Assessment Year 2017-18, losses could be set off against additions made under Sections 68/69. Consequently, the Tribunal directed that the addition of Rs. 26,68,500/- under Section 69 and Rs. 85,000/- under Section 68 be set off against the claimed losses totaling Rs. 39,05,893/-.

4. Validity of additions considering the business commencement date:
The assessee contended that the additions were unjust as the company was under erection and had not commenced business before 01.03.2011. The Tribunal did not delve deeply into this argument, as the primary focus was on the evidence linking the seized documents to the assessee and the set-off of losses against the additions.

Conclusion:
The Tribunal partly allowed the appeal, directing that the additions made under Sections 69 and 68 be set off against the assessee’s claimed losses, in accordance with the CBDT Circular No. 11/2019. The Tribunal emphasized the lack of evidence linking the seized documents to the assessee-company and upheld the principle that losses could be set off against such additions for assessment years prior to 2017-18.

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