TMI Blog2012 (8) TMI 616X X X X Extracts X X X X X X X X Extracts X X X X ..... ties are aggrieved by the order passed by the CIT(A) on 23.4.2010. The issues raised by the Department in its appeal are inter-related with the issue raised by the assessee in its memorandum of cross-objections. It is therefore convenient to dispose of both of them by a consolidated order. 2. We shall first take up the appeal filed by the Department in which the following grounds of appeal have been taken: 1. That the Ld. CIT(A)-II has erred in law and on facts in holding that the Assessing Officer was not justified in treating the commodity profit of Rs. 11,94,315/- as ingenuine and sham and assessing the same under section 68 of the Income Tax Act, 1961. 2. That the Ld. CIT(A) has erred in law and on facts in holding that the income assessed under section 68 of the Income Tax Act, 1961 falls under the heads of income as mentioned in section 14 of the Income Tax Act, 1961. 3. That the Ld. CIT(A) has erred in law and on facts in holding that the income assessed under section 68 can be set off of against any other income as per provisions of section 71 of the Income Tax Act. 4. That the order of the CIT(A)-II be set aside and that of the Assessing Officer be rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said firm, i.e., M/s Shivam Commodities Services, neither paid service tax though it was, according to the AO, payable @10.20% nor was it registered with the Service Tax authorities; (iii) the direction given to the assessee to produce the said party was also not complied with; (iv) the summons issued by the AO to the said party was also not complied with; (v) the said firm, namely, M/s Shivam Commodities Services, was not registered with Multi Commodity Exchange of India (MCX); and (vi) the bills issued by M/s Shivam Commodities Services did not contain relevant particulars like MCX Code Number, name/address of ITCM, contract number, code of the client, trade time, and brokerage, etc. He therefore treated the commodity profit shown by the assessee as unexplained cash credit and accordingly taxed the same u/s 68. 5. It was also claimed by the assessee before the AO that the impugned sum taxed u/s 68 should be treated as income from other sources u/s 56 and the same should be set-off against the losses under other heads of income in terms of section 71. The AO examined the aforesaid claim. He, however, rejected the same for the reasons given in the assessment order. 6. Aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand Baijnath v. CIT [1959] 35 ITR 426 (SC) and Kevalchand Nemchand Mehta v. CIT [1968] 67 ITR 804 (Bom.). 9. We have heard both the parties and carefully considered their submissions. There is no dispute that a sum of Rs.11,94,315/- was credited by the assessee in its books of account for the year under appeal as commodity profit. Since the impugned sum was found credited in the books of the assessee, the burden was on the assessee to satisfactorily explain the income and source thereof. The case of the assessee before the AO was that it represented commodity profit on account of dealings with M/s Shivam Commodities Services. The AO has given detailed reasons to establish the bogus and sham nature of the transactions of the assessee with M/s Shivam Commodities Services. There is no material on record to rebut the specific finding recorded by the AO in this behalf. In this view of the matter, the finding of the AO that the dealings of the assessee with M/s Shivam Commodities Services were bogus and sham is confirmed. There is no other explanation given by the assessee to explain the nature and source of the impugned cash credits. The action of the AO in treating the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of charge of income-tax and computation of total income, be classified under the heads of income specified therein. Thus, section 14 is subject to the other provisions of the I-T Act. Taxability of income under the specific provisions of the I-T Act outside Chapter IV is not affected by heads of income as classified in section 14. As a corollary, it follows that income liable to be taxed under the specific provisions of the I-T Act outside Chapter IV can be taxed without bringing the same under a head of income as specified under section 14/Chapter IV. 12. At this stage, it may be relevant to consider Chapter VI in general and the provisions of section 68 in particular. They read as under: Chapter VI Aggregation of income and set off or carry forward of loss Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 13. Some of the salien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 15 to 59 provide for its quantification. Chapter VI of the Income-tax Act provides for aggregation of income and set off or carry forward of loss. Thus Chapter VI is in two parts; first part deals with aggregation of income while the second part deals with set off or carry forward of losses. Chapter VI has been placed after Chapter IV and V. It comes into play only after the computation of total income under various heads of income in terms of Chapter IV has been done. Income falling under Chapter VI is taxed by aggregating the same with the income quantified in terms of Chapter IV. Chapter VI is not subservient to Chapter IV. Besides, section 14 allows the taxability of income under specific provisions of the I-T Act outside Chapter IV. For the reasons aforestated, the income assessable u/s 68 cannot be assessed as income from other sources u/s 56. 15. Thus what is taxed under Chapter IV is income from a known source including income from other sources. A source of income means a specific source from which a particular income springs or arises. Once a source giving rise to a particular income is identified, it has then to be placed under a particular head of income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassified under one of the heads of income under section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted. The opening words of section 14 "save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from "other sources" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 71 permits set off of loss from one head against income from another head of income as enumerated in section 14. We have already held earlier that income assessable u/s 68 cannot be assessed under any particular head of income including income from other sources u/s 56. In this view of the matter, the business loss assessed by the AO cannot be set off against the amount taxed u/s 68 as unexplained cash credits taxed under section 68 cannot be pegged to any head of income. 19. In view of the forgoing, the appeal filed by the department is allowed. 20. In its memorandum of cross-objections, the assessee has taken the following grounds:- That the Ld. CIT(A) has erred in not allowing deduction of loss of Rs. 74,550/- form derivative trading of commodities against profit earned from the same source. 21. As already stated earlier, the assessee has claimed deduction for a sum of Rs.74,550/- representing loss form derivative trading in commodities against the total profits amounting to Rs.11,94,315/-. The loss claimed by the assessee from derivative trading was disallowed by the AO, which, on appeal, has been confirmed by the CIT(A) with the following observations:- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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