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TMI Blog2015 (3) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; (iv) Assessment of profit from commodity trading as cash credit under section 68 of the Act ; and (v) Rejection of claim of set off of business loss against income assessed as cash credits. 3. The assessee is engaged in the business of manufacture of sponge iron. The Assessing Officer completed the assessment of the year under consideration by making various additions and they were confirmed by the learned Commissioner of Income-tax (Appeals). Hence the assessee has filed this appeal before us. 4. The first issue relates to the disallowance of claim of higher rate of depreciation on assets classified by the assessee as "pollution control equipment". The assessee constructed/acquired certain assets in accordance with the conditions stipulated by the Kerala Pollution Control Board. The assessee treated those assets as "pollution control equipment" and claimed deprecation in the return of income at higher rate of depreciation, i.e., at 80 per cent. Since the rate of depreciation prescribed for "pollution control equipment" under the Act is 100 per cent., the assessee claimed depreciation at 100 per cent. on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Also you may kindly be noted that out of total pre-operative expenses of Rs. 531.15 lakhs, Rs. 337.48 lakhs is amount of interest/finance charges incurred during the construction period. You may further note under section 36(1)(iii) of the Income-tax Act, interest on capital borrowed for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was put to use shall not be allowed as a deduction. Accordingly, we have capitalised on a pro-rata-basis of the pre-operative expenses incurred till the date of commencement of operation. 5 Recuberator 34,48,296.00 Recuberator is being used for cooling the waster gas coming out of ESP chimney. A recuperator is a special purpose counter-flow energy recovery heat exchanger positioned with the supply and exhaust air streams of an air handling system, or in the exhaust gases of an industrial process, in order to recover the waste heat. 6 Road development 15,00,000.00 Refer point No. 4-letter dated September 12, 2007, of Kerala State Pollution Control Board attached herewith. The amount is incurred by us as in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with pollution control equipment as these form part of the infrastructure and construction expenses in the pre-operative period. This does not in any way qualify into the equipment for pollution control specified in Appendix I of the Income-tax Rules mentioning the rate of deprecation. 5 Recuberator 34,48,296.00 This is cooling system and utilised for the recovery of heat for increasing the efficiency of the plant and is in no way connected with pollution control. 6 Road development 15,00,000.00 It may be true that the pollution control board might have stipulated a condition of road requirement. But this does not automatically entitle and qualify as a pollution control equipment. 7 Technical know-how 12,89,340.00 Consultancy charges does not qualify as pollution control equipment. 8 Allocations of structural expenses 50,36,896.32 This has no relevant with pollution control equipment. This expenses form part of the infrastructure and construction expenses and cannot be considered as falling with the realms of pollution control equipment. Thus, this does not in any way qualify into the equipment for pollution control specified in App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment have been installed as per the conditions put forth by the Pollution Control Board. Accordingly he submitted that the assessee has classified these equipment as "pollution control equipment" and claimed higher rate of depreciation. However, we are unable to agree with the said contentions. It is a settled proposition of law that the Income-tax Act has to be construed in a strict manner. The depreciation rates are prescribed under the Act in table given in Appendix I of the Income tax Rules. Under the said Appendix I of the Income-tax Rules, the pollution control equipment, which are eligible for depreciation at 100 per cent. have been listed out. We notice that five items of equipment have been listed under the head "Air pollution control equipment" and 17 items of equipment have been listed under the head "Water pollution control equipment". We also notice that the following words have been used in the Appendix I, viz., "Air pollution control equipment, being :" "Water pollution control equipment, being". The presence of the word "being" signifies that the pollution control equipment should be falling in the nature or category of the list specified in the depreciation sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll three ingredients need to be established before the Assessing Officer. Since the appellant has failed to discharge his onus, in order to prove the genuineness of the credit, the addition made by the Assessing Officer as unexplained credit under section 68 of the Act is upheld and the appeal on this ground is dismissed." 5.1. We have heard the parties on this issue. Before us also, the learned authorised representative reiterated the contentions placed before the tax authorities. It is a well settled proposition of law that the initial burden of proof to prove the cash credits is placed upon the assessee under section 68 of the Act, i.e., the assessee is required to prove cumulatively the three main ingredients, viz., the identity of the creditors, the creditworthiness of the creditor and the genuineness of transactions. As held by the learned Commissioner of Income-tax (Appeals), the receipt of money through the banking channels may prove the genuineness of the transaction, but the assessee has failed to establish the identity of the creditor and also failed to prove the creditworthiness of the creditor. Hence, we are of the view that the decision taken by the learned Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) took the view that the cash-flow statement submitted by the assessee is not sufficient to substantiate the claim that the interest-free capital was used to give advance. Accordingly, he confirmed the disallowance made by the Assessing Officer. 6.3. We have heard the rival contentions on this issue and perused the record. We notice that the assessee has furnished an analysis of balance- sheet to show that the advance for purchase of raw materials was out of own funds. We notice that the learned Commissioner of Income-tax (Appeals) has taken the view that the "interest-free sundry creditors" cannot be considered as "own funds" and accordingly rejected the analysis furnished by the assessee. The claim of the assessee appears to be that the interest bearing funds have been used for other purposes and the advance for purchase of raw material has been given out of "interest-free funds" (own funds + interest-free sundry creditors). However, in our view, the said claim cannot be substantiated by mere analysis of the balance-sheet as at March 31, 2010. For example, we notice that the assessee has borrowed funds from "Federal Bank" for working capital purpose. The advance given for raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 5,13,55,093 was found credited in the books of account of the assessee for the year under appeal as commodity trading profit allegedly received from M/s. Vatika Merchants Pvt. Ltd. The said commodity income was adjusted/set-off by the assessee against busi ness losses of the assessee for the year under consideration. The assessee to (was) asked to file confirmation of the broker through whom the transactions were effected to establish the genuineness of the commodity profit shown in the accounts. In reply, the assessee vide their letter dated January 21, 2013, filed a copy on account of M/s. Vatika Merchants Pvt. Ltd. as appearing in its books for the financial year relevant to the assessment year 2010-11. 6.2 On examination of the confirmation submitted an abnormal feature was noticed in the transaction, that is the assessee had only incurred profits during the year. There was not a single transaction of loss during the whole year. It was also seen that no major investment was made by the assessee during the year. A letter was therefore written on March 12, 2013, to M/s. National Multi Commodity Exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, we do not find any reason to interfere with his decision on this issue and accordingly hold that the claim of receipt of profit from commodity trading is a sham or bogus one. Further as per section 68 of the Act, it is the responsibility of the assessee to explain about the "nature and source" of any sum found credited in the books of account. In the instant case, the assessee has failed to prove about the "nature of credit". Hence we are of the view that the Assessing Officer has rightly assessed the same as cash credit under section 68 of the Act. 8. The last issue relates to the assessment of cash credits and profit from commodity trading as income not falling under any of the heads and consequently rejection of claim of set off of business loss and carry forward business loss/depreciation against them. We notice that the Assessing Officer has taken the view that the claim of set off of losses is admissible against the income computed under any of the heads of income. He has also taken the view that the income assessed under section 68 of the Act does not fall under any of the heads of income and they are included in the total income by a process of "aggregation of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified 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 anyone 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice that the abovesaid distinct points were not brought to the notice of the Chandigarh Bench of the Tribunal. 8.4. However, the assessee has placed reliance on the decision rendered by the hon'ble Calcutta High Court in the case of Daulatram Rawatmull v. CIT [1967] 64 ITR 593 (Calcutta) and contended that the additions made under section 68 of the Act should be considered as its business income, since it is the only source of income available with it. 8.5. We have gone through the decision rendered by the hon'ble Calcutta High Court in the case of Daulatram Rawatmull [1967] 64 ITR 593 (Calcutta) and we extract below the relevant observations made by the hon'ble High Court (page 680) : "Concealed income is not necessarily an income from sources not disclosed, that is to say, from other sources. In the case of Lakhmichand Baijnath v. CIT [1959] 35 ITR 416 (SC), the Supreme Court has pointed out that when an amount, held to be concealed income, is credited in the business books, it is not an unreasonable inference to draw that it is a receipt from business. The Supreme Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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