M/s Dulari Digital Photo Services Pvt. Ltd., Ludhiana V. ITO, Ludhiana

CO 37/CHANDI/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 6932 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-03-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 11-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: N K SAINI
• Keywords: Unexplained cash credit; Unexplained investment; Unexplained expenditure; Salary income; Source of fund; Deemed to accrue or arise in india
• Section: 69C; 68; 56; 28; 2; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: A BENCH: CH ANDIGARH BEFORE SH H.L.KARWA, VP AND SHRI D.K.SRIVASTAVA, AM ITA NO.984/CHD/2010 ASSESSMENT YEAR: 2006-07 ITO, WARD V(1) V. DULARI DIGITAL PHOTO LUDHIANA SERVICES PVT. LTD. LUDHIANA PAN NO.AABCD2044D AND C.O. NO.37/CHD/2010 (IN ITA NO.984/CHD/2010) ASSESSMENT YEAR: 2006-07 DULARI DIGITAL PHOTO V. ITO SERVICES PVT. LTD. APPELLANT BY: SHRI N.K. SAINI RESPONDENT BY: SHRI SUDHIR SEHGAL DATE OF HEARING: 16.01.2012 DATE OF PRONOUNCEMENT: 09.03.2012 ORDER D K SRIVASTAVA : BOTH THE PARTIES 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 2 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 30.11.200 6 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 TH E 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 TH E 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 TO THE IMPUGNED ADDITION ARE THAT A SUM OF RS.11,94,315/- WAS FOUND CREDITED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE YEAR UNDER APPEAL AS COMMODITY PROFIT ALLEGEDLY RECEIVED FROM M/S SHIVAM COMMODITIES SERVICES (PROPRIETOR: SHRI SURES H KUMAR GUPTA) OUT OF WHICH A SUM OF RS.74,550/- WAS CLAIMED AS LOSS AND RESULTANTLY NET INCOME AMOUNTIN G TO RS.11,19,765/- WAS SHOWN BY THE ASSESSEE AS COMMODITY INCOME. THE SAID COMMODITY INCOME WAS ADJUSTED/SET-OFF BY THE ASSESSEE AGAINST LOSSES UND ER OTHER HEADS/SOURCES OF INCOME. THE AO TOOK UP THE C ASE FOR SCRUTINY. HE CALLED UPON THE ASSESSEE TO ESTABL ISH THE GENUINENESS OF THE COMMODITY PROFIT SHOWN IN TH E ACCOUNTS. IN REPLY, THE ASSESSEE FILED A COPY OF ACCOUNT OF M/S SHIVAM COMMODITIES SERVICES AS 3 APPEARING IN ITS BOOKS FOR THE YEAR UNDER APPEAL TOGETHER WITH PHOTOCOPIES OF 16 BILLS. THE AO EXAMI NED THE DETAILS/BILLS FURNISHED BY THE ASSESSEE IN SUPP ORT OF ITS CLAIM. HE NOTICED SEVERAL ABNORMAL FEATURES IN THE TRANSACTIONS AND ACCORDINGLY ISSUED A DETAILED NOTICE DATED 17.12.2008 WHICH HAS BEEN REPRODUCED A T PAGES 36 OF THE ASSESSMENT ORDER. AFTER CONSIDERIN G THE MATERIALS AVAILABLE ON RECORD INCLUDING THE REP LY FURNISHED BY THE ASSESSEE, THE AO HELD THAT THE IMPUGNED TRANSACTIONS SHOWING GENERATION OF COMMODI TY PROFIT OF RS.11,94,315/- WERE SHAM AND BOGUS. HE HA S GIVEN SEVERAL REASONS FOR COMING TO THE AFORESAID CONCLUSION IN THE ASSESSMENT ORDER, WHICH INTER-ALI A, ARE (I) NO INVESTMENT WAS MADE BY THE ASSESSEE TO E ARN COMMODITY PROFIT OF RS.3,43,876/- WHILE MEAGER INVESTMENT OF RS.50,000/- WAS MADE BY THE ASSESSEE TO EARN REMAINING COMMODITY PROFIT; (II) THE 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 SERV ICE 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 SHIVA M COMMODITIES SERVICES DID NOT CONTAIN RELEVANT PARTICULARS LIKE MCX CODE NUMBER, NAME/ADDRESS OF ITCM, CONTRACT NUMBER, CODE OF THE CLIENT, TRADE TI ME, AND BROKERAGE, ETC. HE THEREFORE TREATED THE COMMOD ITY PROFIT SHOWN BY THE ASSESSEE AS UNEXPLAINED CASH CREDIT AND ACCORDINGLY TAXED THE SAME U/S 68. 4 5. IT WAS ALSO CLAIMED BY THE ASSESSEE BEFORE THE A O THAT THE IMPUGNED SUM TAXED U/S 68 SHOULD BE TREATE D AS INCOME FROM OTHER SOURCES U/S 56 AND THE SAME SHOULD BE SET-OFF AGAINST THE LOSSES UNDER OTHER HE ADS OF INCOME IN TERMS OF SECTION 71. THE AO EXAMINED T HE 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. I N 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 BURDE N 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 THA T THE IMPUGNED SUM TAXED BY THE AO U/S 68 SHOULD BE CONSIDERED AS INCOME FROM OTHER SOURCES U/S 56 AND THEREAFTER SET OFF AGAINST THE LOSSES, THE LD. DR SUBMITTED THAT SUCH A BENEFIT COULD NOT BE EXTENDED FOR THE DETAILED REASONS GIVEN BY THE AO IN THE ASSESSMENT ORDER. 8. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) IN THIS BEHALF. WITHOUT PREJUDICE TO THE AFORESAID, HE SUBMITTED TH AT EVEN IF THE IMPUGNED SUM IS TREATED AND TAXED AS 5 UNEXPLAINED CASH CREDIT U/S 68 IT HAS STILL TO BE ASSESSED AS INCOME FROM OTHER SOURCES U/S 56 AND TH EN SET-OFF AGAINST THE LOSSES UNDER OTHER HEADS IN TER MS OF SECTION 71. ACCORDING TO HIM, ANY ITEM ASSESSED BY THE AO AS INCOME INCLUDING THE IMPUGNED SUM ASSESSE D BY THE AO U/S 68 MUST NECESSARILY FALL UNDER ONE OF THE HEADS SPECIFIED IN SECTION 14. HE SUBMITTED THA T THE INCOME FROM OTHER SOURCES U/S 56 WAS A RESIDUAR Y HEAD OF INCOME AND THEREFORE ANY INCOME INCLUDING T HE IMPUGNED SUM ASSESSED BY THE AO AS UNEXPLAINED CASH CREDIT U/S 68 WHICH DOES NOT FALL UNDER ANY OF THE SPECIFIC HEADS, NAMELY, SALARY, INCOME FROM HOUS E PROPERTY, INCOME FROM BUSINESS OR PROFESSION OR CAPITAL GAIN WOULD NECESSARILY FALL UNDER THE RESIDUARY HEAD, I.E., INCOME FROM OTHER SOURCES U/S 56. ACCORDING TO HIM, NO ITEM CAN BE ASSESSED AS INCOME UNLESS IT FALLS UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14. HE CLAIMED THAT THE IMPUGN ED SUM BEING UNEXPLAINED CASH CREDIT TAXED BY THE AO W AS THEREFORE LIABLE TO BE ASSESSED AS INCOME FROM OTHE R SOURCES U/S 56 AND THEN SET-OFF AGAINST THE LOSSES UNDER OTHER HEADS OF INCOME IN TERMS OF SECTION 71. IN SUPPORT OF HIS SUBMISSIONS, HE RELIED UPON THE JUDGMENTS IN LAKHI CHAND BAIJ NATH V. CIT, 35 ITR 4 26 AND KEBAL CHAND NEM CHAND MEHTA V. CIT, 67 ITR 804. 9. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. THERE IS NO DISPUTE T HAT A SUM OF RS.11,94,315/- WAS CREDITED BY THE ASSESSE E IN ITS BOOKS OF ACCOUNT FOR THE YEAR UNDER APPEAL A S COMMODITY PROFIT. SINCE THE IMPUGNED SUM WAS FOUND CREDITED IN THE BOOKS OF THE ASSESSEE, THE BURDEN W AS ON THE ASSESSEE TO SATISFACTORILY EXPLAIN THE INCOM E AND SOURCE THEREOF. THE CASE OF THE ASSESSEE BEFORE 6 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 RECOR D TO REBUT THE SPECIFIC FINDING RECORDED BY THE AO IN THIS BEHALF. IN THIS VIEW OF THE MATTER, THE FINDIN G 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 T HE 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 CREDI T U/S 68 OF THE ACT, THEREFORE, DESERVES TO BE CONFIR MED AND IS ACCORDINGLY CONFIRMED. 10. WE SHALL NOW DEAL WITH THE ISSUE AS TO WHETHER UNEXPLAINED CASH CREDITS, WHICH ARE DEEMED TO BE TH E INCOME OF THE ASSESSEE U/S 68, CAN BE CONSIDERED FO R SET-OFF AGAINST LOSSES UNDER VARIOUS HEADS OF INCOM E 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 ASSESSABL E UNDER A KNOWN SOURCE OR HEAD OF INCOME AS ENUMERATE D 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. CHAPT ER IV OF THE INCOME-TAX ACT DEALS WITH COMPUTATION OF TOTAL INCOME UNDER VARIOUS HEADS OF INCOME. SECTIO N 14, WHICH ENUMERATES HEAD OF INCOME, FALLS UNDER CHAPTER IV AND READS AS UNDER: 7 CHAPTER IV COMPUTATION OF TOTAL INCOME HEADS OF INCOME HEADS OF INCOME. 14. SAVE AS OTHERWISE PROVIDED BY THIS ACT, ALL INCOME SHALL, FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME, BE CLASSIFIED UNDER TH E FOLLOWING HEADS OF INCOME: A.SALARIES. B. [OMITTED BY THE FINANCE ACT 1989] C.INCOME FROM HOUSE PROPERTY. D.PROFITS AND GAINS OF BUSINESS OR PROFESSION. E.CAPITAL GAINS. F.INCOME FROM OTHER SOURCES. 11. SOME OF THE SALIENT FEATURES OF SECTION 14 IN S O FAR AS THEY HAVE MATERIAL BEARING ON THE ISSUE UNDE R APPEAL ARE AS UNDER: (I) SECTION 14 MERELY CLASSIFIES THE INCOME UNDER VARIOUS HEADS OF INCOME FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME UNDER THEM. SECTION 14 DOES NOT DEAL WITH AGGREGATION OF INCOME; IT MERELY DEALS WITH CLASSIFICATION OF INCOME UNDER VARIOUS HEADS OF INCOME. COMPUTATION OF TOTAL INCOME UNDER VARIOUS HEADS OF INCOME UNDER CHAPTER IV IS ALTOGETHER DIFFERENT FROM AGGREGATION OF INCOME UNDER CHAPTER VI OF THE INCOME-TAX ACT. THEY DO NOT MEAN ONE AND THE SAME THING. THEY ARE FUNDAMENTALLY DIFFERENT FROM EACH OTHER. (II) SECTION 14 IS NOT A CHARGING SECTION; IT MERELY CLASSIFIES INCOME UNDER VARIOUS HEADS OF INCOME. IT IS TOTAL INCOME OF THE PREVIOUS YEAR AND NOT THE HEAD OF INCOME WHICH IS CHARGEABLE TO INCOME-TAX U/S 4. 8 (III) OPENING WORDS OF SECTION 14 ARE SAVE AS OTHERWISE PROVIDED BY THIS ACT, ALL INCOME SHALL, FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATIO N OF TOTAL INCOME, BE CLASSIFIED UNDER THE HEADS OF INCO ME SPECIFIED THEREIN. THUS, SECTION 14 IS SUBJECT TO T HE OTHER PROVISIONS OF THE I-T ACT. TAXABILITY OF INCO ME UNDER THE SPECIFIC PROVISIONS OF THE I-T ACT OUTSID E CHAPTER IV IS NOT AFFECTED BY HEADS OF INCOME AS CLASSIFIED IN SECTION 14. AS A COROLLARY, IT FOLLOW S 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 INC OME AS SPECIFIED UNDER SECTION 14/CHAPTER IV. 12. AT THIS STAGE, IT MAY BE RELEVANT TO CONSIDER C HAPTER VI IN GENERAL AND THE PROVISIONS OF SECTION 68 IN PART ICULAR. 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, SATISFACTO RY, 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 TH E ASSESSEE IN TERMS OF SECTIONS 68, 69, 69A, 69B AND 69C, 9 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 O F 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 I-T ACT. (II) COMPUTATION OF INCOME UNDER EACH HEAD OF INCOM E IN TERMS OF CHAPTER IV REQUIRES DETERMINATION OF EXCES S OF GROSS RECEIPTS OVER EXPENSES LEGALLY PERMISSIBLE IN THAT BEHALF UNDER THE RELEVANT HEAD OF INCOME. AGGREGATI ON OF INCOME UNDER CHAPTER VI DOES NOT PROVIDE FOR ANY DEDUCTION TOWARDS ANY EXPENDITURE. IT BRINGS THE EN TIRE SUM TO THE CHARGE OF INCOME-TAX AND THUS THERE IS N O ELEMENT OF COMPUTATION OF INCOME UNDER CHAPTER VI AS IN THE CASE OF INCOME FALLING UNDER SPECIFIC HEADS IN TERMS OF CHAPTER IV. IT COULD BE FOR THIS REASON TH AT THE SUMS TAXED UNDER CHAPTER VI HAVE BEEN KEPT OUTS IDE THE COMPUTATIONAL PROVISIONS OF CHAPTER IV. (III) AMOUNTS ARE TAXED UNDER THE PROVISIONS OF CHAPTER VI FOR THE REASON THAT THEIR NATURE AND SOU RCE ARE NOT KNOWN. ONCE THEIR NATURE AND SOURCE ARE KNO WN, THEY HAVE TO BE PEGGED TO THAT SOURCE/HEAD OF INCOM E AND TAXED UNDER THE RESPECTIVE HEADS OF INCOME AS ENUME RATED IN CHAPTER IV AND NOT UNDER THE PROVISIONS OF CHAPT ER VI. CONVERSELY, IF THE NATURE AND SOURCE OF SUCH AM OUNTS ARE NOT KNOWN, THEY HAVE TO BE TAXED UNDER THE SPEC IFIC PROVISIONS OF CHAPTER VI. IT THEREFORE NECESSARILY FOLLOWS THAT WHAT IS TAXED UNDER THE SPECIFIC PROVI SIONS OF CHAPTER VI CANNOT BE PEGGED TO ANY OF THE SOURCES/HEADS OF INCOME AS SPECIFIED IN CHAPTER IV. 10 14. THE AFORESAID VIEW IS SUPPORTED BY THE SCHEME O F TAXATION UNDER THE INCOME-TAX ACT. SECTION 2(45) DE FINES TOTAL INCOME AS THE TOTAL INCOME REFERRED TO IN SECTION 5, COMPUTED IN THE MANNER LAID DOWN IN THIS ACT. IT I S RELEVANT TO NOTE THAT THE PRINCIPAL CHARGING SECTION 4 MAKES THE TOTAL INCOME OF THE PREVIOUS YEAR SUBJECT TO THE CHARGE OF INCOME-TAX. SECTION 5 DEFINES THE SCOPE OF TOTAL IN COME REFERRED TO IN THE PRINCIPAL CHARGING SECTION. SECT ION 14 CLASSIFIES THE HEADS OF INCOME WHILE SECTIONS 15 TO 59 PROVIDE FOR ITS QUANTIFICATION. CHAPTER VI OF THE I NCOME-TAX ACT PROVIDES FOR AGGREGATION OF INCOME AND SET OFF OR CARRY FORWARD OF LOSS. THUS CHAPTER VI IS IN TWO PARTS; F IRST PART DEALS WITH AGGREGATION OF INCOME WHILE THE SEC OND 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 CHAP TER VI IS TAXED BY AGGREGATING THE SAME WITH THE INCOME QUANTIFIED IN TERMS OF CHAPTER IV. CHAPTER VI IS NO T SUBSERVIENT TO CHAPTER IV. BESIDES, SECTION 14 ALLO WS THE TAXABILITY OF INCOME UNDER SPECIFIC PROVISIONS OF THE I-T ACT OUTSIDE CHAPTER IV. FOR THE REASONS AFO RE- STATED, 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 F ROM 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, I T 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 11 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 CAN NOT THEN BE PEGGED TO A KNOWN SOURCE/HEAD OF INCOME. CHAPTER IV CONTEMPLATES COMPUTATION OF INCOME ARISI NG 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 MEAN THAT THE INCOME ASSESSABLE UNDER SECTION 68 HAS TO BE ASSESSED U/S 56. IN THE CASE BEFORE US, SOURCE OF UNEXPLAINED CASH CREDITS IS NOT KNOWN AND HENCE THEY CANNOT BE LINKED TO ANY KN OWN SOURCE/HEAD OF INCOME INCLUDING INCOME FROM OTHER SOURCES. IN ORDER TO CONSTITUTE INCOME FROM OTHER SOURCES, THE SOURCE, NAMELY, THE OTHER SOURCES, HAS TO BE IDENTIFIED. INCOME FROM UNEXPLAINED OR UNKNOW N SOURCES CANNOT THEREFORE BE CONSIDERED OR TAXED AS INCOME FROM OTHER SOURCES. THE AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HON'BLE GUJARAT HI GH COURT IN FAKIR MOHAMMAD HASI HASSAN V CIT 247 ITR 2 90 IN WHICH THE HON'BLE HIGH COURT HAS HELD AS UNDER:- THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C OF THE INCOME-TAX ACT, 1961, WOULD SHOW THAT IN CASES WHERE THE NATURE AND SOURCE OF INVESTMENTS MADE BY THE ASSESSEE OR THE NATURE AND SOURCE OF ACQUISITION OF MONEY, BULLION, ETC., OWNED BY THE ASSESSEE OR THE SOURCE OF EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT EXPLAINED AT ALL, OR NOT SATISFACTORILY EXPLAINED, THEN, THE VALUE OF SUCH 12 INVESTMENTS AND MONEY OR THE VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCOUNT OR THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE 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 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 13 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 THE FOREGOING, WE ARE UNABLE TO HOLD THAT UNEXPLAINED CASH CREDITS ASSESSED U/S 68 ARE T O BE ASSESSED AS INCOME FROM OTHER SOURCES U/S 56. 17. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, RELI ED UPON THE JUDGMENTS IN LAKHMICHAND BAIJNATH V. CIT, 35 ITR 416 (SC) AND KEVALCHAND NEMCHAND MEHTA V CIT, 6 7 ITR 804 (BOM.). WE HAVE CAREFULLY GONE THROUGH THEM. THEY HAVE BEEN RENDERED IN THE CONTEXT OF OLD INDIA N INCOME-TAX ACT OF 1922 IN WHICH THERE WAS NO PROVIS ION CORRESPONDING TO SECTION 68 OR CHAPTER VI OF THE INCOME-TAX ACT 1961. IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE OLD INDIAN INCOME-TAX ACT OF 1922, A 14 VIEW WAS TAKEN THAT UNEXPLAINED CASH CREDITS WOULD BE ASSESSABLE AS INCOME FROM OTHER SOURCES. SECTION 68 UNDER CHAPTER VI HAS BEEN INSERTED IN THE PRESENT INCOME-TAX ACT TO PROVIDE THAT ANY SUM FOUND RECORD ED IN THE BOOKS OF THE ASSESSEE WOULD BE TAXED AS INCO ME OF THE ASSESSEE IF HE FAILED TO SATISFACTORILY EXPL AIN THE NATURE AND SOURCE THEREOF. IN THIS VIEW OF THE MATTER, UNEXPLAINED CASH CREDITS HAVE TO BE BROUGHT TO TAX UNDER SECTION 68 AND NOT UNDER SECTION 56. BOTH THE AFORESAID SECTIONS OPERATE IN THE FIELDS RESERV ED FOR THEM. IT CANNOT THEREFORE BE SAID THAT WHAT IS ASSESSABLE AS INCOME U/S 68 MUST BE ASSESSED AS INC OME FROM OTHER SOURCES U/S 56. JUDGMENTS RENDERED IN TH E CONTEXT OF THE OLD INCOME-TAX ACT ARE THEREFORE HAR DLY RELEVANT TO DECIDE THE ISSUE UNDER APPEAL. 18. THE ASSESSEE CLAIMS SET OFF OF LOSS FROM BUSINE SS ASSESSED BY THE AO U/S 28 AGAINST THE INCOME BEING UNEXPLAINED CASH CREDITS ASSESSED BY THE AO U/S 68 ON THE GROUND THAT INCOME ASSESSED BY THE AO U/S 68 IS INCOME FROM OTHER SOURCES U/S 56. SECTION 71 PERMIT S 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 TH E DEPARTMENT IS ALLOWED. 15 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 FR OM 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 APPELLANT COULD NOT GET THESE TRANSACTIONS VERIFIED BY PRODUCING THE BROKER AND PRODUCING HIS 16 BOOKS OF ACCOUNTS BEFORE THE A.OY' WOULD FULLY JUSTIFY THE A.O. IN DISALLOWING SUCH LOSS. THEREFORE, THOUGH THE LD. COUNSELS HAVE CONTENDED AS ABOVE, THE CLAIM OF LOSS OF RS.74,550/- CANNOT BE TAKEN TO HAVE BEEN PROVED WITH NECESSARY EVIDENCE. DISALLOWANCE OF LOSS OF RS.74,550/- BY THE A.O. IS, THEREFORE, UPHELD. 22. WE HAVE HEARD BOTH THE PARTIES. WE ARE IN AGREEMENT WITH THE REASONS GIVEN BY THE LD. CIT(A) FOR CONFIRMING HIS ACTION OF THE AO IN DISALLOWING THE IMPUGNED LOSS. IN THIS VIEW OF THE MATTER, THE ORDE R PASSED BY THE CIT(A) IN THIS BEHALF IS CONFIRMED. 23. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMENTS IN CIT V. ANUPAM KAPOOR, 299 ITR 179 (P&H) AND CIT V. KORLAY TRADING COMPANY, 232 ITR 820 (CAL.). WE HAVE GONE THROUGH THEM. NONE OF THEM IS APPLICABLE TO THE FACTS OF TH E CASE BEFORE US. 24. RESULTANTLY, THE APPEAL FILED BY THE DEPARTMENT IS ALLOWED WHILE THE MEMORANDUM OF CROSS-OBJECTIONS FI LED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 9 TH MARCH 2012 SD/- SD/- (H.L.KARWA) (D.K.SRIVASTAVA) VICE PRESIDENT ACCOUNTANT MEMBER DATED: THE 9 TH MARCH 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR