I-T - Undisclosed income can be assessed as 'Income from other sources' and against same assessee can claim set off of unabsorbed depreciation : ITAT
By TIOL News Service
NEW DELHI, JULY 19, 2018: THE ISSUE IS - Whether surrendered income can be assessed under the Head Income from other sources from which assessee can claim set off of unabsorbed deprecation of current year as well as of earlier years. YES IS THE VERDICT.
Facts of the case
A search and survey was conducted in the group case in which some incriminating materials were found relating to the assessee company. The AO recorded satisfaction for initiating the proceedings u/s 153C of the Act. The assessee company, running business of manufacturing of HDPE/PP Bags and Fabric, had filed return for relevant AY. The assessee company claimed net profit of Rs. 13,51,427 and after adjustment of eligible depreciation of current year, the unabsorbed depreciation of current year came to Rs. 48,03,674. The assessee company had carried forwarded unabsorbed depreciation of Rs.1,78,93,656/- from earlier year also. The AO noted that the group had surrendered certain undisclosed income. The assessee company had set-off the current year unabsorbed deprecation as well as earlier years unabsorbed depreciation from income surrendered during the course of survey and this resulted the total income of assessee-company for the year under consideration at NIL. The AO asked to explain as to how the undisclosed income declared during the course of survey was eligible to be set-off against the unabsorbed deprecation of current year and earlier year. The AO did not accept the contention of assessee and the depreciation set-off by the assessee company against the income surrendered during the course of survey was disallowed. On appeal, CIT(A), upheld the order of AO.
Tribunal held that,
++ every income is to be assessed u/s 14 of the Act and loss to be adjusted u/s 70 to 72 of the Act. In order to assess an income under the Head "Income" and there must be some express provision of law as is held by the Supreme Court in the case of D.P. Sindhu. Each income is to be assessed under five Heads of income, Otherwise, the same is not taxable at all. Similar provisions for set-off of loss are defined under Sections 70 to 72 of the Act. As per Section 72, carried forward of business loss is not to be allowed to be set-off against any other head of income other than income from business. Inter Head set-off of business loss is allowed under section 71 against all other income except income from salary. Same head adjustment of business loss against other business income is allowed under section 70 of the Act. As such, provisions of law on unabsorbed deprecation which is allowed as depreciation of current year under section 32(2) fall in Section 71 and not under section 72, as such, allowable as 'business expenditure'. Therefore, findings of the AO is not correct that surrendered income cannot be assessed even under the Head "Income from other sources". It may also be noted here that after insertion of Section 115BBE, any income assessed under sections 68 to 69D will be taxed under section 115BBE and not under regular provisions w.e.f. AY 2013-2014. Further, Section 115BBE has got amended w.e.f. A.Y. 2017-2018 that loss will not be allowed against such income. Therefore, it is clear that w.e.f. A.Y. 2017- 2018 any type of loss will not be allowed deduction and this Amendment is not retrospective in nature. Therefore, claim of assessee-company shall have to be allowed by authorities below. The issue is covered in favour of the assessee-company by the orders of various Benches of the Tribunal. The appeal of assessee-company is accordingly allowed.
(See 2018-TIOL-1096-ITAT-DEL)
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