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TMI Blog2016 (6) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Commissioner of Income Tax(Appeals) has erred in law and on facts by upholding the submission of the assessee ignoring the provisions of section 14, 68, 70 and 71 of IT Act. 3. The order of the learned Commissioner of Income Tax(Appeals) be set aside and that of the Assessing Officer be restored. 3. The facts in brief are that the assessee, a private limited company, filed its return on 23/10/2003 declaring total income as nil. This return was processed under section 143(1) of the Income-tax Act, 1961 (for short "the Act") of the Act on 19/12/2003. Thereafter, on receipt of information from the Additional DIT (Investigation), New Delhi that the assessee company received accommodation entries of Rs. 94 lacs from M/s S.J. Capital Private Limited during the year under consideration, proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued on 25/03/2010. In profit and loss account, the assessee had shown total receipt of Rs. 9,60,41,837/- which included profit from share amounting to Rs. 1,68,29,316/-. The net profit as worked out by the assessee was of Rs. 9,88,127/-. After making adjustment for brought forward losses th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 71 of the Act, however, the sum of Rs. 1,68,29,316/-was assessed under deeming provisions of the Act falling under the chapter "aggregation of income and set off for carry forward of loss", which being not falling under any of the head 'A' to 'F' of heads of income and, therefore, the business loss was not allowed to set off against the such headless income. The learned Commissioner of Income-tax(Appeals), however, was of the view that the income from undisclosed/unexplained sources was to be classified under the residuary head of 'income from other sources' and, therefore, business loss was eligible for set off as per provisions of section 71 of the Act. 6. Before us, the learned Departmental Representative relying on the order of the Assessing Officer submitted that in the scheme of Income Tax Act, wherever source of income are known, the income is classified under heads like salary, income from house property, capital gains and profit and gains of business and profession and income from other sources. He further submitted that when sources of the income are known and if it cannot be classified under the first four heads of salary, income from house property, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 71 of the Act. The Revenue is contesting that income under section 68 of the Act is under the deeming provisions and sources of which are not known, therefore, it cannot be classified under the head 'income from other sources' and consequently business loss cannot be adjusted against such income in accordance to section 71 of the Act , whereas, according to the assessee the unexplained income under section 68/69 are to be classified under the head "income from other sources" and the business losses are to be allowed to be set off against such income. 9. We find that for the purpose of charge of income tax and computation of total income, under chapter IV of the Act, the section 14 has classified all the income under six heads of income out of which one head of "interest on securities" has been omitted w.e.f. 01/04/1989, but the section 14, starts with the saving clause as under: "14. Save as otherwise provided by this Act, all incomes shall for the purposes of charge of income tax and computation of total income, be classified under the following heads of income: A. -Salaries B- ----------------- C. - Income from house property D.- Profit and gains of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Supreme Court. Thus in this context, whether the income from sale of tenancy rights, falls under the head capital gain or under the head income from other sources, the Hon'ble Supreme Court referred to Section 14 of the Act and held as under: "11. Sec. 14 of the IT Act, 1961, as it stood at the relevant time similarly provided that "all income shall for the purposes of charge of income-tax and computation of total income be classified under six heads of income," namely : (A) Salaries; (B) Interest on securities; (C) Income from house property; (D) Profits and gains and business or profession; (E) Capital gains; (F) Income from other sources unless otherwise, provided in the Act. 12. Sec. 56 provides for the chargeability of income of every kind which has not to be excluded from the total income under the Act, only if it is not chargeable to income-tax under any of the heads specified in s. 14 items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of s. 56. 13. There is no dispute that a tenancy right is a capital asset the surrender of which would attract s. 45 so that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Gujarat High Court in the case of Fakir Mohammed Haji Hasan V/s CIT (supra), wherein the issue of setoff of income under the section 69 against loss under other heads has been decided as under: "6. Under s. 4 of the IT Act, income-tax is to be charged in accordance with the provisions of the Act in respect of the total income of the previous year of every person. As provided by s. 5, total income of any previous year of a person would, inter alia, include all income from whatever source derived which is received or is deemed to be received by such person, subject to the provisions of the Act. It will be seen from s. 69A of the Act that where the bullion, jewellery or other valuable article is not recorded in the books of accounts and there is no explanation about the nature and source of its acquisition, or the explanation is not satisfactory, the value thereof may be deemed to be the income of the assessee of the financial year immediately preceding the assessment year in which the assessee is found to be the owner of such bullion, etc. 6.1 The scheme of ss. 69, 69A, 69B and 69C would show that in cases where the nature and source of investments made by the assessee or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources". Therefore, the corresponding deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of ss. 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions. 14. Thus, Hon'ble Gujrat High Court in the case has clearly analyzed that where source of income is not known, such deemed income will not fall under the head "income from other sources" and accordingly will not be available for set-off under section 71 of the Act. 15. In a subsequent judgment in the case of DCIT versus Radhey developers India Ltd, 329 ITR 1, the Hon'ble Gujarat High Court held that the income tax Act envisages every income under any of the heads specified in section 14 of the Act. The observation of the Hon'ble High Court are as under: "15. The decisions of this Court in the case of Fakir Mohmed Haji Hasan (supra) and Krishna Textiles (supra) are neither relevant nor germane to the issue considering the fact that in none of the decisions the legislative scheme emanating from conjoint reading of provisions of ss. 14 and 56 of the Act have been considered. The apex Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nknown and the addition confirmed under the section 68 of the Act by the CIT(A) has not been challenged by the assessee even before the Tribunal. 19. The issue has also been decided by the Hon'ble Punjab and Haryana High Court in the case of Kim Parma private limited versus CIT 258 CTR for 454 and held that deemed income under 69,, 69A, 69B, & 69C of the Act are not assessable under the head income from other sources relying on the Gujarat High Court decision in the case of Fakir Mohmed Haji Hasan versus CIT 247 ITR 290. 20. This issue of set-off of losses against the deemed income under section 68/69 has also been decided by the Tribunal Ahmadabad bench in the case of Gujarat Infrapipes Private Limited Vs. ITO in ITA No. 1036/Ahd/2007 as under: "10. We have heard the parties and gone through the facts of the case. The issue raised in terms of ground no.3 before us is as to whether the unaccounted stock of 31,751 kgs found during the survey can be assessed u/s 69B /69C of the Act or under the head business income. Undisputedly, the assessee admitted during the course of survey that they did not maintain any stock register on day-to-day basis for production nor it was possible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any one of these 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. In the facts of the case income has been brought to tax u/s 69C of the Act on fulfilling the requirements by virtue of the deeming provisions.The scope of a charging section cannot be enlarged by importing further fiction by deeming the sum received as income from business or other sources. If the words of a statute are precise and unambiguous, they must be accepted as declaring the express intention of the Legislature. It was trite proposition in law that a legal fiction has to be strictly construed. As was observed by the Hon'ble Supreme Court in Bengal Immunity Co. Ltd. vs. State of Bihar (1955) 2 SCR 603 legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond that legitimate field. In the present case the fiction is limited to the cases provided in the sections 69B/69C and cannot be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 or was taxable as "Income from other sources" under section 10(3) read with section 56 of the Act . In that context Hon'ble Apex Court held that section 56 provides for the chargeability of income of every kind which has not to be excluded from the total income under the Act, only if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of section 56. 10.4 However, the facts in the case under consideration are totally different. From the aforesaid decisions We are of the opinion that the observations of the Hon'ble Apex Court in the said decision can not be straight away applied in the facts of the case under consideration. In this context ,Hon'ble Supreme Court cautioned in their recent decision dated 6.3.2009 in the case of State of AP Vs. M.Radha Krishna Murthy,[Criminal Appeal no. 386 of 2002] " 6. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward depreciation. Thus, ground no. 3 & 4 in the appeal are dismissed." 21. In the case above also, the Tribunal has distinguished the facts of the case of DP Sandhu Bros Chambur Private Limited (supra) as the question before the Hon'ble Supreme Court in the said case was different and held that placing reliance on the decision of the Hon'ble High Court & Tribunal, relying upon the decision of the Hon'ble Supreme Court in the case of D.P. Sandhu Bros. Chambur Private Ltd. (supra) is totally misplaced. The facts in the case in hand are also similar and hence reliance placed by the assessee on various decisions mentioned is misplaced. In background of the above discussion, thus respectfully following the judgment of the Hon'ble Gujarat High Court in the case of Fakir Mohammed Haji Hassan (supra), Hon'ble Punjab and Haryana High Court in the case of Kim Pharma Private Limited Vs. CIT (supra) and the decision of the Tribunal in the case of Gujarat Infra Pipes Private Limited (supra), we hold that business loss of Rs. 1,62,35,194/- in the case of assessee cannot be set off against the income of Rs. 1,68,29,316/- assessed under the deeming provisions of section 68, which is not fal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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