By TIOL News Service

JAIPUR, MAY 19, 2018: THE ISSUE BEFORE THE BENCH IS - Whether undisclosed income surrendered during search can be set off against business loss for the AY 2013 -14 as amendment in section 115BBE is operative from the AY 2017-18 and is prospective in nature. YES IS THE VERDICT.

Facts of the case:

A search and seizure operation u/s 132 was carried out on the members of Motisons Group on 31.10.2012 of which the assessee was one of the members. During search proceedings a sale deed was found, according to which assessee company had purchased one residential plot through its Director Sh. Rajendra Tiberawala for a total consideration of Rs. 1,64,00,000/- whereas the value of the property determined by the Registering Authority was Higher. The Director of the assessee company, admitted undisclosed investment of Rs. 36,00,000/- in the purchase of the this residential plot and surrendered the same in the hands of the company. Subsequently, while filing the return, the assessee company offered to tax the surrendered amount of Rs. 36,00,000/- under the head "income from other sources" and at the same time, claimed set off of the said income against the current year business loss. During assessment, AO noted that surrendered income had to be taxed as "deemed income" without setting off of the losses u/s 70 & 71 of the Act. The AO further referred to the provisions of Section 115BBE(1)(a) of the Act and held that the undisclosed income of the assessee would be charged @ 30%. It was also held by the AO that the confession/admission by the assessee company through its Director Sh. Rajendra Tiberawala regarding surrender was binding on the assessee and an amount of Rs. 767,768/- was added and brought to tax in the hands of the assessee company. On appeal, CIT(A) confirmed the order of AO.

Tribunal held that,

++ coordinate Bench in the case of ACIT CC-2, Vs. M/s Girdhar Associates, has held as under "we have heard the rival contentions and perused the materials available on record including the Circular No. 3/2017 dated 20th Jan. 2017issued by the CBDT, Ministry of Finance, New Delhi. It is not imperative to repeat the facts of the case as it is found that the issue in question is covered by the Circular No. 3/2017 dated 20-01-2017 issued by the CBDT, Ministry of Finance, New Delhi relating to the issue of section 115BBE of the Act and this section is operative from the assessment year 2017-18 and not related to the issue prior to it. Hence, the application of Section 115BBE of the Act applied by the AO on the assessee is not applicable in the present facts and circumstances of the case. In view of the above deliberations, the Ground No. 2 of the Revenue is dismissed.";

++ it is clear that the amendment brought in section 115BBE wherein no set off of losses against surrendered income brought to tax is prospective in nature and doesn't apply for the assessment year under consideration. The decisions relied upon by the Revenue have also been examined and doesn't support its case. For the year under consideration, there is no bar for set off of current year business loss u/s 71 against income brought to tax under the head "income from other sources". Hence the assessee will be eligible for set off of current year business loss of Rs 767,768 against the undisclosed investment of Rs 36,00,000 towards purchase of plot of land which has been surrendered during the course of search, and subsequently offered and brought to tax under section 69 read with section 115BBE of the Act. In the result, sole ground taken by the assessee is allowed. In the result, the appeal filed by the assessee is allowed.

(See 2018-TIOL-721-ITAT-JAIPUR)