3 Section 115BBE– Amendment made by the Finance Act, 2016 to section 115BBE(2), with effect from 01.04.2017, whereby set-off of loss against the income referred to in sections 68, 69, 69A, 69B, 69C or 69D is denied, is prospective and is effective from 01.04.2017.

ACIT vs. Sanjay Bairathi Gems Ltd.

ITA No. : 157 (Jp.) of 2014

A.Y.: 2013-14, Date of Order: 8^th
August, 2017

FACTS       

The assessee-company was engaged in carrying
on business of export, import and manufacture of precious and semi-precious
stones and jewellery. In the course of survey action at the business premises
of the assessee-company which action was converted into search, excess stock of
Rs. 231.41 lakh was surrendered.

The AO assessed the income on account of
excess stock u/s. 69B. However, he denied set-off of business loss against
excess stock by applying the provisions of section 115BBE and relied on the
decision of the Punjab & Haryana High Court in the case of Kim Pharma
(P.) Ltd. vs. CIT [2013] 35 taxmann.com 456 and Liberty India vs. CIT
[2007] 293 ITR 520.

Aggrieved, the assessee preferred an appeal
to the CIT(A) who relying on the ITAT, Jaipur Bench in the case of DCIT vs.
Ramnarayan Birla [IT Appeal No. 482 (JP) of 2015, dated 30.9.2016] held
that the excess stock so found is part of regular business, the same is to be
taxed as business income. He further held that the amendment to the proviso of
section 115BBE wherein the word “or set off of any loss” is introduced by the
Finance Act, 2016 w.e.f. 1.4.2017, set-off of business loss during the year
against the excess stock found in the search operation is allowable. The CIT(A)
allowed the appeal filed by
the assessee.

Aggrieved, the Revenue preferred an appeal
to the Tribunal where, on behalf of the Revenue, it was argued that the
provisions of section 115BBE come under Chapter XII providing for determination
of rate of tax in certain special cases and accordingly, it relates to
quantification of amount of tax and not to the computation of total income and
therefore, the amendment brought in by the Finance Act, 2016 would not affect
the computation of total income. It was, accordingly, contended that the
business loss in the instant case cannot be allowed to be set-off against the
amount brought to tax u/s. 69B in terms of undisclosed investment in stock of
stones, gold and jewellery.

 HELD

The Tribunal having noted the amendment
brought in section 115BBE(2) by the Finance Act, 2016, observed that if the
contentions made by CIT(DR) are accepted, the question that arises is would the
interpretation render sub-section (2) otiose and what was the necessity
for bringing in such amendment. It observed that the intention of the
legislature has been provided in the memorandum explaining the amendment.

The Tribunal held that given the fact that
the AO has invoked the provisions of section 115BBE in the instant case, the provisions
of sub-section (2) to section 115BBE are equally applicable. The amendment
brought in by the FA, 2016 whereby set-off of losses against income referred to
in section 69B has been denied is stated clearly to be effective from 1.4.2017
and will accordingly, apply AY 2017-18 onwards. Accordingly, for the year under
consideration, there is no restriction to set-off of business loss against
income brought to tax u/s. 69B of the Act.

The Tribunal observed that the matter could
be looked at from another perspective. The provisions relating to set-off of
losses are contained in Chapter VI relating to aggregating of income and
set-off of losses. Whenever legislature desires to restrict set-off of loss or
allowance of loss, in a particular manner, usually, the provisions are made in
Chapter VI such as non-allowance of business loss against salary income as
provided in section 71(2A), and treatment of short-term or long-term capital
losses. There is no specific provision which restricts set-off of business losses
against income brought to tax u/s. 69B. Interestingly, both section 69B and
section 71 fall under the same Chapter VI. In the absence of any provisions in
section 71 falling under Chapter VI which restrict set-off, in the instant
case, set-off of business losses against income brought to tax u/s. 69B cannot
be denied.

The Tribunal dismissed the appeal filed by
the revenue.