2025 (9) TMI 1243 - AT - Income Tax

Authority ordered set-off of losses against business income for AYs 2012-13 and 2013-14 under Section 115BBE

Manubha Prabhatsangh Vaghela, At. Indramana Vada Kankrej, Banaskantha Versus Income Tax Officer, Ward – 5, Palanpur

ITAT directed the AO to allow set-off of losses against business income for AYs 2012-13 and 2013-14 under section 115BBE, holding that reliance on the ... Set-off of losses against business income determined u/s 115BBE - assessment years in question are AYs 2012-13 and AY 2013-14 - HELD THAT:- As relying on CIRCULAR NO. 11/2019 [F.NO.225/45/2019-ITA.II], DATED 19-6-2019 AO is directed to allow the set-off of losses against business income. ISSUES PRESENTED AND CONSIDERED 1. Whether losses may be set off against income determined under section 115BBE of the Income-tax Act for assessment years prior to 2017-18, notwithstanding the amendment to section 115BBE(2) effective 1-4-2017 which expressly bars set-off of any loss against such income. 2. Whether the Central Board of Direct Taxes' administrative clarification (Circular No. 11/2019 read with earlier explanatory note in Circular No. 3/2017) governs the treatment of conflicting approaches adopted by Assessing Officers in assessments prior to assessment year 2017-18, and the effect of that clarification on pending assessments and appeals. ISSUE-WISE DETAILED ANALYSIS Issue 1: Allowability of set-off of losses against income taxed under section 115BBE for years prior to AY 2017-18 Legal framework: Section 115BBE(2) (as amended w.e.f. 1-4-2017) provides that where total income includes income referred to in sections 68/69/69A/69B/69C/69D, 'no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed' in computing the income referred to in section 115BBE(1). Prior to this amendment, the statutory language did not expressly bar set-off of losses against such deemed income. Precedent treatment: The material records that Assessing Officers adopted conflicting views in assessments prior to AY 2017-18 - some allowed set-off of losses against additions made under sections 68/69/69A/69B/69C/69D or income determined under section 115BBE(1), while others denied such set-off. The CBDT examined this divergence and issued administrative guidance to achieve consistency. Interpretation and reasoning: The Board's explanatory note (referenced in Circular No. 3/2017) recognised 'uncertainty on the issue of set-off of losses against income referred to in section 115BBE' under the pre-amendment law, and the Finance Act, 2016 inserted the words 'or set off of any loss' w.e.f. 1-4-2017 to remove that ambiguity. The Board's subsequent Circular No. 11/2019 concludes that because the express bar on set-off was introduced only by the 2016 amendment effective from 1-4-2017, taxpayers are entitled to claim set-off of losses against income determined under section 115BBE of the Act for assessment years up to and including AY 2016-17. Thus the correct legal construction of the pre-amendment statutory text, read with legislative intent and the later amendment, permits set-off for periods before the amendment's effective date. Ratio vs. Obiter: The holding that, for assessment years prior to AY 2017-18, set-off of losses against income referred to in section 115BBE is permissible is the operative ratio on this point. Observations concerning the legislative intent behind the 2016 amendment and the Board's role in clarifying prior uncertainty function as supporting ratio; discussion of Assessing Officers' past divergence is explanatory and ancillary. Conclusion: Losses are allowable to be set off against income determined under section 115BBE for assessment years prior to 2017-18; the Assessing Officer is directed to permit such set-off in the assessments under challenge (cross-reference: Issue 2 regarding the effect of the CBDT Circular). Issue 2: Legal effect and application of CBDT Circular No. 11/2019 (and Circular No. 3/2017 explanatory note) on pending assessments and litigation for periods prior to AY 2017-18 Legal framework: CBDT circulars constitute administrative clarifications interpreting the statute and are issued to ensure uniform application of tax provisions by departmental officers. Where the statute was ambiguous prior to amendment, the Board may direct a consistent approach for pending assessments and litigations. Precedent treatment: The record shows the Board considered the divergence in departmental practice and referred to its prior explanatory note that acknowledged uncertainty before the amendment. No court precedent is cited; the Tribunal relies on the Board's circular to resolve inconsistency in departmental treatment. Interpretation and reasoning: The Board explicitly examined the legislative intent behind the Finance Act, 2016 amendment and concluded that the express insertion of 'or set off of any loss' from 1-4-2017 demonstrates that prior to that date set-off of losses was not intended to be disallowed. Consequently, the Board directed that assessors adopt a consistent approach and that pending assessments and litigations be handled accordingly. The Tribunal treats this administrative clarification as determinative for the appeals before it and instructs the Assessing Officer to allow set-off of losses against business income where income was determined under section 115BBE for years prior to AY 2017-18. Ratio vs. Obiter: The Tribunal's reliance on the CBDT circular to direct allowance of set-off constitutes the dispositive ratio concerning the applicability and effect of the Board's clarification to the pending assessments. Remarks on departmental divergence are obiter insofar as they explain the factual background prompting the circular. Conclusion: The CBDT Circular No. 11/2019 (read with the explanatory note in Circular No. 3/2017) governs the treatment of set-off for assessments prior to AY 2017-18 and requires Assessing Officers to permit set-off of losses against income referred to in section 115BBE for those years; pending assessments and litigations are to be disposed of in accordance with that circular (cross-reference: Issue 1 application to the present appeals). Disposition applied to present appeals The Tribunal, applying the CBDT circular and the statutory timeline of the 2016 amendment, directs the Assessing Officer to allow the set-off of losses against business income as claimed for the assessment years prior to AY 2017-18 and accordingly partly allows the appeals.