2024 (12) TMI 244 - AT - Income Tax

AO must consider both undisclosed income and losses from seized documents, cannot selectively pick favorable portions only

ITAT Rajkot allowed the assessee's miscellaneous application under Section 254(2) for mistake apparent from record. The tribunal held that when AO relies ... Mistake apparent from record u/s 254(2) - loss which mentioned in the seized documents has to be entertained by the AO while framing assessment order u/s 143(3) r.w.s. 153A of the Act, however, he failed to do so - As submitted if the assessing officer, takes into account the undisclosed income, to tax, in the hands of the assessee, as per seized material, then undisclosed loss, as per seized material, should be considered and benefit of set-off of losses, should be given to the assessee, however, the assessing officer, failed to do so HELD THAT:- We find that undisclosed income and undisclosed losses, both were not shown by the assessee, in the return of income, filed by the assessee, in response to notice u/s 153A of the Act, therefore, either the assessing officer should ignore both the items or should consider both the items, to compute the tax liability of the assessee, as per seized material. The “Income” as well as “losses”, both were undisclosed, as seized material, however, the assessing officer has taken into account to tax the undisclosed income and ignored the undisclosed losses, which is not acceptable. It is a common knowledge that seized material must be read as a whole, that is, every part of the seized material must be constructed within the four corners of the Act. When the undisclosed income has been taken from seized material, then why not the undisclosed losses should not be taken from the seized material. Apple to Apple comparison is needed, which is required, as per the principle of equity and justice. No any seized material should be interpreted in isolation, if the assessing officer, takes the undisclosed income from seized material, then he has to take into account the undisclosed losses from the same seized material, and benefit of set-off of losses, should be given to the assessee, on account of undisclosed losses, which the assessing officer has failed to do so. We are of the view that every part of the seized material, must be analyzed, within the four corners of the Act, when the undisclosed income is considered by the assessing officer, based on the seized material, then assessing officer ought to have considered, the undisclosed losses, based on the same seized material. In fact, even if an assessee inadvertently failed to claim any legitimate claim, the revenue has to correct it and due tax has to be collected. In this regard in the case of S.R. Koshti vs. CIT [2004 (12) TMI 62 - GUJARAT HIGH COURT] has held that 'the authorities under Income Tax Act, 1961 are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee under a mistake, misconception or not being properly instructed is over assessed, the authorities under the Act are required to assist him and assure that only legitimate taxes due are collected'. As we have noted that any document has to be taken as a whole and the Assessing Officer should not pick and choose those parts of the impounded/seized material which suits him and totally rejected those parts of the same document which are in support of the assessee. Therefore, either the Assessing Officer should not rely on such impounded/seized material, at all, or if he uses these documents as evidences against the assessee, then he should read it as a whole and also accept those parts of the documents which support the assessee. One Cannot be permitted to blow hot and cold in the same steam. ‘Head I win’ and ‘tail you lose’, approach is alien to the principles of justice. There cannot be approval and rejection in the same steam. To attempt to take advantage of one part and to reject the rest, is against the fine norms of jurisprudence Considering these facts, we are of the view that there is a mistake apparent from record in non-consideration of these facts, and non-consideration of a decision of the Supreme Court, which can be said to be a 'mistake apparent from the record'. Therefore, we direct the assessing officer to allow undisclosed loss of immediately preceding year, to be set- off against the undisclosed income for the impugned year Miscellaneous application is allowed. Issues Involved:1. Mistake apparent from the record under Section 254(2) of the Income-tax Act, 1961.2. Set-off of brought forward business losses against undisclosed income.3. Consideration of Supreme Court and jurisdictional High Court decisions in rectification applications.4. Principle of equity and justice in assessing undisclosed income and losses.5. Obligation of tax authorities to assist taxpayers in claiming legitimate reliefs.Detailed Analysis:1. Mistake Apparent from the Record:The assessee filed two Miscellaneous Applications under Section 254(2) of the Income-tax Act, 1961, claiming a mistake apparent from the record in the Tribunal's order dated 12.06.2024. The Tribunal consolidated these applications for assessment years 2016-17 and 2017-18. The primary contention was that the Tribunal failed to consider the binding decision of the Supreme Court in CIT vs. Shelly Products, which mandates that excess tax deposited should be refunded to the assessee as its retention would breach Article 265 of the Constitution. The Tribunal acknowledged that non-consideration of a Supreme Court decision constitutes a mistake apparent from the record, warranting rectification.2. Set-off of Brought Forward Business Losses:The assessee argued that the set-off of brought forward business losses from AY 2015-16 against undisclosed income for AYs 2016-17 and 2017-18 was not allowed by the CIT(A) and the Tribunal. The Tribunal initially dismissed the set-off claim, stating that losses not returned in the response to notice under Section 153A are not eligible for set-off. However, the Tribunal later recognized that both undisclosed income and losses were part of the seized material during the search and seizure operation, and thus should be considered together. The principle of equity demands that if undisclosed income is taxed, undisclosed losses should also be acknowledged for set-off.3. Consideration of Supreme Court and High Court Decisions:The Tribunal's failure to consider the Supreme Court's decision in CIT vs. Shelly Products and the jurisdictional High Court's decision was identified as a mistake apparent from the record. The Tribunal emphasized that judicial decisions act retrospectively and must be applied to ensure justice. The non-consideration of these decisions was rectified, allowing the set-off of undisclosed losses against undisclosed income.4. Principle of Equity and Justice:The Tribunal underscored the principle of equity and justice, stating that tax authorities should not selectively apply parts of the seized material to the disadvantage of the assessee. Both undisclosed income and losses should be considered to ensure a fair assessment. The Tribunal criticized the assessing officer's approach of taxing undisclosed income while ignoring undisclosed losses, which contradicts the principles of equity and justice.5. Obligation of Tax Authorities:The Tribunal reiterated the obligation of tax authorities to assist taxpayers in claiming legitimate reliefs. It cited the CBDT's Circular No. 114 XL-35 of 1955, emphasizing that officers should guide taxpayers in claiming refunds and reliefs. The Tribunal highlighted that tax authorities should not take advantage of an assessee's ignorance and must ensure that only legitimate taxes are collected.Conclusion:The Tribunal allowed both Miscellaneous Applications, directing the assessing officer to set off the undisclosed losses from AY 2015-16 against the undisclosed income for AYs 2016-17 and 2017-18. The decision reinforced the importance of considering judicial precedents, ensuring equity and justice, and the duty of tax authorities to assist taxpayers in securing rightful reliefs.