9911796707
TMI Blog2012 (8) TMI 616X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 restored. 5. That the appellant craves leave to add to amend any ground of appeal before it is finally disposed off. 3. The assessee is engaged in the business of photography. It filed return of income on 30.11.2006 returning its total income at nil. After processing, the return was selected for scrutiny as a result of which a sum of Rs.11,94,315/- being the commodity profit found credited in the books of account of the assessee was treated as bogus and sham and consequently assessed as unexplained cash credit u/s 68 of the I-T Act. The plea of the assessee that the aforesaid income taxed by the Assessing Officer u/s 68 should be set off against the loss from other heads of income was also rejected by the Assessing Officer. 4. Facts giving rise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Aggrieved by the order passed by the Assessing Officer, the assessee filed appeal before the CIT(A) upon which the claim of the assessee was allowed. 7. Aggrieved by the order passed by the CIT(A), the Department is now in appeal before this Tribunal. In support of appeal, the ld. DR invited our attention to the findings recorded by the AO in the assessment order. He submitted that the aforesaid findings clearly established that the impugned transactions with the said party were sham and therefore have no element of genuineness. According to him, the burden was on the assessee to prove the genuineness of the transactions which the assessee has failed to discharge. As regards the claim of the assessee that the impugned sum taxed by the AO u/s 68 should be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices. 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 impugned sum as unexplained cash credit u/s 68 of the Act, therefore, deserves to be confirmed and is accordingly confirmed. 10. We shall now deal with the issue as to whether unexplained cash credits, which are deemed to be the income of the assessee u/s 68, can be considered for set-off against losses under various heads of income as enumerated in section 14. The answer to the aforesaid question lies in the fact as to whether unexplained cash credits taxed u/s 68 are assessable under a known source or head of income as enumerated u/s 14. If they are so assessable under a head of income specified in section 14, they would then and then only need to be set off against the loss from other heads of income in terms of section 71. Chapter IV of the Income-tax Act deals with "COMPUT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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 salient features of Chapter VI and section 68 in so far as they have material bearing on the issue under appeal are as under: (i) Any sum, which is deemed to be the income of the assessee in terms of sections 68, 69, 69A, 69B and 69C, falls within the "Scope of total income' as defined in section 2(45)/5 and is therefore chargeable to tax under section 4. In terms of Chapter VI it is aggregated with the income computed under Chapter IV. Aggregation of income under Chapter VI is not the same thing as computation of income under various heads of income in terms of Chapter IV of the IT Act. (ii) Computation of income under each head of income in terms of Chapter IV requires determination of excess of gross receipts over expenses le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 specified in section 14. Thus income can be taxed under a specific head of income as enumerated in section 14 only when it is possible to peg the same to a known source/head of income. If the nature and source of a particular receipt is not known, it cannot then be pegged to a known source/head of income. Chapter IV contemplates computation of income arising from known sources/heads of income whereas Chapter VI, on the other hand, contemplates aggregation of the entire sum the nature and sources of which are not known. The aforesaid two Chapters are completely different in their nature, scope and effect. Though the incomes assessable under them are part of total income as defined in sections 2(45)/4/5 of the I-T Act yet that does not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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" because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head "Income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions." 16. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties 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:- "7.4.1 While dealing with above mentioned grounds of appeal it has been held that the transactions of the appellant with the broker in respect of earning the income from trading in derivatives of commodity were genuine. For deciding as above most important fact which was considered was that the transactions resulted in income which has been accordingly disclosed in the return of income by the appellant. However the transactions involved in this regard are those transactions where the appellant claimed loss of Rs. 74,550/-. Therefore, for this the appellant was required to prove with necessary evidence that such loss was genuine loss. It is entirely different from the income which is otherwise disclosed in the return of income of the appellant. The very fact that the a ..... 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