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The Commissioner of Income Tax, Trichur Versus M/s. Kerala Sponge Iron Ltd.

2015 (9) TMI 233 - KERALA HIGH COURT

Assessment of profit from commodity trading as cash credit under Section 68 - set off of current years business loss as well as brought forward losses/unabsorbed depreciation against the income assessed - transactions showing generation of commodity trading profit were sham and bogus transactions without any element of genuineness as confirmed by ITAT - Whether having confirmed the addition of the alleged commodity trading profit as unexplained cash credit under Section 68 of the Act, whether th .....

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to such heads of income will not arise. Insofar as this case is concerned, admittedly the income has been treated as unexplained cash credit under Section 68 of the Act. Once it is so done for the purpose of set off or any other purpose, the said unexplained income cannot be treated as business income under any one of the head provided under Section 14 in which case the question of set off does not arise.

Insofar as the Supreme Court judgment in Lakhmichand Baijnath v. Commissioner o .....

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e decision rendered on the basis of such a conclusion could not have been of any assistance to arrive at the conclusion of the Tribunal that the assessee was entitled to set off the unexplained income under Section 68 of the Act in accordance with the provisions of the Act relating to set off.

We, therefore, set aside the order passed by the Tribunal, to the extent it has set aside the order of the Commissioner of Income Tax (Appeals) directing the Assessing Officer to allow the set o .....

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lenging the order passed by the Income Tax Appellate Tribunal, Cochin Bench, in ITA 654/13 concerning the assessment year 2010-2011. The only issue that was raised before us was in relation to the assessment of profit from commodity trading as cash credit under Section 68 of the Income Tax Act. The assessment order itself show that it was found from the Profit and Loss Account that a sum of ₹ 5,13,55,093/- was found credited in the books of accounts of the assessee as commodity trading pro .....

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tional Multi Commodity Exchange of India that M/S Vatika Merchants Private Limited was expelled by the exchange on the ground of issuing fraudulent contract to its clients. It was also confirmed that the assessee is a non existent client under any member of the exchange. Based on this, the Assessing Officer found that the transactions showing generation of commodity trading profit of 5,13,55,093/- was a sham and bogus one. On that basis, the Assessing Officer treated the commodity trading profit .....

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not furnished any material to controvert the finding reached by the assessing officer that the profit from commodity trading declared by the assessee was a sham or bogus transaction. We notice that the assessing officer has given the above said finding after making necessary enquiries with the Commodity exchange. 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. Fu .....

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ng the case of Fakir Mohmed Haji Hassam v. CIT (2001) 247 ITR 290 relied on by the Assessing Officer to deny this claim and relying on the judgment of the Calcutta High Court in Daulatram Rawat Mull v. CIT (64 ITR 593), the Tribunal held thus: "8.6 In the instant case, the contention of the assessee is that it has no other source of income other than business income. The said contention was not controverted by the tax authorities. The assessee has credited the loan amount of ₹ 18.00 l .....

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ing with the issue relating to the disallowance of interest, the assessing officer has pointed out that the assessee has a loan liability of ₹ 21.56 crores and claimed interest expenditure of ₹ 3.33 crores. The AO has allowed depreciation of ₹ 2.63 crores. All these figures throw light on the magnitude of operations of the Company. Under these set of facts, we are of the view that it may not be unreasonable to treat the loan receipts and profit from commodity trading assessed u .....

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rward losses/unabsorbed depreciation against the income assessed in accordance with the provisions of the Income Tax Act. It is aggrieved by this order of the Tribunal that the Revenue has filed this appeal. The main question of law raised by the Revenue is whether on the facts and circumstances of the case, since the income determined under Section 68 does not fall under any head in Section 14 is not such an income beyond Section 70 which deals with set off? 4. We heard the Senior Counsel for t .....

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xplained cash credit under Section 68 of the Act. The question is whether having confirmed the addition of the alleged commodity trading profit as unexplained cash credit under Section 68 of the Act, whether the Tribunal was justified in allowing set off. 6. In our view, answer to this question should be in the negative. This is evident from the judgment of the Gujarat High Court in Fakir Mohmed Haji Hassam v. CIT (2001) 247 ITR 290 distinguished by the Tribunal itself where it has been held tha .....

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