DCIT, Ludhiana V. M/s Gobind Casting Pvt. Ltd., Ludhiana

ITA 1191/CHANDI/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81007 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 21-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Unexplained cash credit; Gift; Business income; Income from undisclosed sources; Transactions in derivatives
• Section: 115JB; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 1191/CHD/2009 ASSESSMENT YEAR : 2006-07 THE D.C.I.T., VS. M/S GOBIND CASTING PVT. LTD., CENTRAL CIRCLE-II, 645, INDL. AREA-B, LUDHIANA. LUDHIANA. NOW AT VILLAGE KANGANWAL. LUDHIANA. PAN: AABCG 4240 N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 19.11.2014 DATE OF PRONOUNCEMENT : 25.11.2014 O R D E R PER BHAVNESH SAINI, J.M. : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA DATED 14.9.2009 FOR ASSESSME NT YEAR 2006-07 ON THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL :- 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FAC TS OF THE CASE IN HOLDING THAT TRANSACTIONS SHOWN BY THE ASSESSEE M/S SHIVAM COMMODITIES SERVICES WERE GE NUINE. 2. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN HOLDING THAT PROVISIONS OF SECTION 68 OF TH E I.T. ACT, 2 1961 ARE NOT APPLICABLE IN THE CASE AS THE CREDITS H AVE ALREADY BEEN DISCLOSED AS INCOME. 3. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN HOLDING THAT THE INCOME ASSESSED BY THE ASS ESSING OFFICER U/S 68 OF THE I.T. ACT IS TO BE ASSESSED UN DER ANY OF THE HEADS U/S 14 OF THE ACT. 4. THE LD. CIT(A) HAS FURTHER ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN HOLDING THAT THE ASSESSEE'S LOSS FROM MANUFACTURING ACTIVITIES COULD BE SET OF U/S 71 OF THE I.T. ACT AGAINST THE INCOME FROM DERIVATIVE TRADING OF COMMOD ITIES BASED ON HIS OWN FINDING THAT SUCH INCOME WAS ASSESSABLE U/S 14 OF THE I.T. ACT AND NOT U/S 68 OF THE I.T. ACT AS ASSESSED BY THE A.O. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE DERIVED INCOME FROM MANUFACTURING AND SALE OF NON-A LLOY INGOTS. THE PERUSAL OF THE ASSESSEES FINAL ACCOUNT S ANNEXED WITH THE RETURN OF INCOME SHOWED THAT IT HA D DECLARED SALE AND OTHER INCOME AT RS.19,45,43,669/- .THIS INCLUDED RS.2,75,56,944/-SHOWN WITH THE NARRATION ' MISC. RECEIPTS'. THE ASSESSING OFFICER MADE INQUIRIES WIT H REGARD TO THE NATURE OF THE ABOVE MISC. RECEIPTS AN D ASKED THE ASSESSEE TO FURNISH NECESSARY EVIDENCE TO SUBST ANTIATE THE CLAIM. THE ASSESSEE EXPLAINED BEFORE THE AS SESSING OFFICER THAT THESE RECEIPTS WERE ON ACCOUNT OF COMM ODITY PROFIT EARNED BY THE ASSESSEE DURING THE RELEVANT P ERIOD THROUGH M/S SHIVAM COMMODITIES SERVICES, HEAD OFFIC E INSIDE DELHI GATE, MALERKOTLA, SANGRUR AND BRANCH O FFICE I.E. ROOM NO.236, LSE BUILDING, FEROZE GANDHI MARKE T, LUDHIANA, THE ASSESSING OFFICER NOTED THAT THE ASS ESSEE HAD NOT INVESTED ANY AMOUNT AS PER THE BOOKS OF ACC OUNTS 3 OF THE SAID BROKER FOR EARNING THE HUGE INCOME AS A BOVE. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT FRO M 2.5.2005 TILL 31.5.2005, CASH PAYMENTS OF RS.20,000 /- WERE FOUND TO HAVE BEEN MADE EVERY DAY LEAVING SUND AYS BY THE SAID BROKER TO THE ASSESSEE. THIS RESULTED IN DEBIT BALANCE OF RS.5,00,000/- AS ON 31.5.2005. DURING THIS PERIOD NO TRANSACTION OF SALE/PURCHASE OF COMM ODITIES HAD TAKEN PLACE. DURING THE PERIOD 1.6.2005 TILL 20.1.2006 NEITHER ANY CHEQUE NOR ANY PROFIT OR CASH WAS FOUND TO HAVE BEEN ISSUED TO THE ASSESSEE, WHICH RE SULTED IN HEFTY CREDIT BALANCE OF RS.2,64,06,176/- AS ON 20.1.2006. FIRST CHEQUE WAS ISSUED BY THE BROKER T O THE ASSESSEE AT RS.7,50,000/- ON 23.11.2006. THE ASSESS ING OFFICER EXAMINED ACCOUNT OF THE ASSESSEE IN THE BO OKS OF M/S SHIVAM COMMODITIES SERVICES, THE BROKER. THE ASSESSING OFFICER DOUBTED IF ANY ONE COULD EARN COMMODITY PROFIT OF RS.2,75,56,944/- WITHOUT INVESTING EVEN A SINGLE RUPEE AND IF HUGE CREDIT BA LANCE OF RS.1,80,56,936/- COULD BE OUTSTANDING IN THE BOOKS OF THE BROKER WHEN AS PER THE PRESCRIBED NORMS FOR GENUINE TRANSACTIONS THE PAY IN/PAY OUT WAS REQUIRED TO BE CLEARED ON THE SAME DAY. 3. THE ASSESSING OFFICER MADE FURTHER INQUIRIES IN THIS REGARD. HE NOTED THAT M/S SHIVAM COMMODITIES SERVI CES LTD. HAS NEVER BEEN REGISTERED WITH MULTI COMMODITY EXCHANGE OF INDIA LTD. AND ANY OTHER GOVT. ORGANIZA TION. FURTHER NO SERVICE TAX WAS FOUND TO HAVE BEEN CHARG ED IN 4 THE BILLS ISSUED BY THE SAID BROKER TO THE ASSESSEE . THIS WAS SO THOUGH AS PER THE INFORMATION COLLECTED BY T HE ASSESSING OFFICER FROM MS. DEEPTI MAHAJAN, CEO, LUDHIANA COMMODITY TRADING SERVICES PVT. LTD., SUCH SERVICE TAX WAS DULY CHARGEABLE. FROM THE ABOVE, TH E ASSESSING OFFICER CONSIDERED THAT THE COMMODITY PRO FIT CLAIMED TO BE RECEIVED BY THE ASSESSEE AT RS.2,75,56,944/- WAS APPARENTLY NOT GENUINE. THE ASSESSING OFFICER, THEREFORE, ASKED THE ASSESSEE TO FURNISH NECESSARY EXPLANATION AS TO WHY THIS SHOULD NOT BE CONSIDERED AS UNEXPLAINED AND INGENUINE PROFIT AND PROVISIONS OF SECTION 68 OF THE ACT SHOULD NOT BE A PPLIED. THE ASSESSEE WAS FURTHER ASKED TO EXPLAIN WHY SET O FF OF CURRENT BUSINESS LOSS WITH THIS INCOME PROPOSED TO BE ASSESSED U/S 68 OF THE ACT SHOULD NOT BE DISALLOWED . THE ASSESSEE MADE VARIOUS SUBMISSIONS BEFORE THE ASSESS ING OFFICER VIDE LETTER DATED 23.12.2008. THE ASSESSIN G OFFICER HAD REPRODUCED THE SUBMISSIONS OF THE ASSE SSEE IN PART-B OF THE ASSESSEE WAS THAT NOT GIVING ANY A DVANCE TO THE BROKER FOR CARRYING OUT THE COMMODITY TRANSA CTIONS DEPENDED UPON THE GOODWILL, REPUTATION OF THE CLIEN T AND THE RELATIONSHIP BETWEEN THE BROKER AND ITS CLIENT. IT WAS ARGUED BY THE ASSESSEE THAT NOT GIVING SUCH ADVANCE WOULD NOT PROVE THAT THE TRANSACTIONS WERE NOT GENUINE. IT WAS FURTHER EXPLA INED BY THE ASSESSEE THAT EVEN OTHERWISE THE ASSESSEE HAD E ARNED HUGE PROFIT ON ACCOUNT OF DERIVATIVE TRADING AND TH AT THIS, PROFIT WAS LYING WITH THE BROKER. THE ASSESSEE ALS O 5 EXPLAINED THAT M/S SHIVAM COMMODITIES SERVICES HAD NOT BEEN REGISTERED WITH MULTIPLE COMMODITY EXCHANGE OF INDIA OR ANY OTHER GOVT. ORGANIZATION AND THAT, THEREFORE, NORMS LIKE PAY-IN AND PAY OUT TO BE CLEA RED ON THE SAME DAY DO NOT APPLY TO THEM. IT WAS CLARIFI ED THAT IT WAS NOT ESSENTIAL FOR ANY PERSON DEALING IN DERI VATIVES TRADING OF COMMODITY TO BE REGISTERED WITH MULTIPLE COMMODITY EXCHANGE OF INDIA. REGARDING NON-PAYMENT OF SERVICE TAX BY THE BROKER, IT WAS SUBMITTED THAT MI GHT BE IN THE CASE OF THE BROKER THE LIMIT FOR PAYMENTS OF SERVICE TAX HAD NOT BEEN CROSSED AND-TH AT IN ANY CASE, THE ASSESSEE WAS NOT CONCERNED AS TO WHET HER THE BROKER HAD PAID SERVICE TAX OR NOT. AS PER THE ASSESSEE, ALL THE NECESSARY EVIDENCE IN THE SHAPE O F DIFFERENT BILLS AND CONFIRMATION FROM M/S SHIVAM COMMODITIES SERVICES WAS ASSESSED TO TAX. THE ASSE SSEE, THEREFORE, SUBMITTED THAT THE TRANSACTIONS WERE GEN UINE AND THAT THE CLAIM OF THE ASSESSEE SHOULD BE ACCEPT ED. 4. WITH REGARD TO APPLICATION OF THE PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT, IT WAS EXPLAINED THAT THE ASSESSEE HAD ALREADY SHOWN THIS AMOUNT AS INCOME AND THAT, THEREFORE, PROVISIONS OF SECTION 68 WERE NOT APPLICABLE. FOR NON- ALLOWING THE SET OFF OF THE BUSINESS LOSS WITH THE INCOME FROM COMMODITY TRANSACTIONS, IT WAS CONTENDED THAT THE INCOME EARNED BY THE ASSESSEE FROM COMMODITY TRANSACTIONS WAS ITS BUSINESS INCOME AND THAT EVEN FOR ARGUMENT SAKE OF IT WAS CONSIDERED TO BE INCOME NOT 6 UNDER THE HEAD BUSINESS OR PROFESSION YET IT COUL D AT THE BEST BE ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. AS PER THE ASSESSEE IN VIEW OF PRO VISIONS OF SECTION 71 OF THE ACT SUCH INCOME EVEN UNDER THE HEAD OTHER SOURCES IS VERY MUCH ELIGIBLE FOR SET OFF W ITH CURRENT YEARS' BUSINESS LOSS. THE ASSESSING OFFICE R, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE. HE REITERATED THE VARIOUS DISCREPANCIES ALLEGED IN THI S CASE WHICH HAVE BEEN BROUGHT OUT IN THE PRECEDING PARAGR APHS. THE ASSESSING OFFICER FURTHER MADE INQUIRIES IN RE SPECT OF M/S SHIVAM COMMODITIES SERVICES WHICH IS THE PROPRIETORSHIP OF ONE SHRI SURESH KUMAR GUPTA. UP TO ASSESSMENT YEAR 2007-08, HE WAS FOUND TO BE ASSESSE D WITH ITO-V(4), LUDHIANA. THE ASSESSING OFFICER NO TED THAT THE SAID M/S SHIVAM COMMODITIES SERVICES HAD SHOWN INCOME OF RS.1,08,580/- FOR THE ASSESSMENT YE AR 2006-07 AND OF RS.98,600/- FOR ASSESSMENT YEAR 2007 -08. THE ACCOUNTS OF M/S SHIVAM COMMODITIES SERVICES WER E KNOWN TO BE NOT AUDITED. AS PER THE ASSESSING OFFI CER, THIS WAS NOT PRACTICALLY POSSIBLE FOR THE PERSON DE CLARING TAXABLE INCOME IN THE ABOVE RANGE TO OWE RS. 1,80,56,940/- TO ONE PARTY I.E. THE ASSESSEE. AS P ER THE ASSESSING OFFICER, THE SAID BROKER WOULD HAVE BEEN DEALER/BROKER FOR MANY SUCH COMPANIES/PERSONS AND, THEREFORE, WOULD HAVE FURTHER OWED HUGE AMOUNTS TO THEM. THE ASSESSING OFFICER ALSO WONDERED THAT THE ASSESS EE ADMITTED THAT IT WAS NOT ESSENTIAL FOR ANY PERSON I .E. BROKER DEALING IN DERIVATIVES TRADING OF COMMODITIE S TO BE 7 REGISTERED WITH MULTI COMMODITY EXCHANGE OF INDIA. HE AGAIN REFERRED TO THE INFORMATION OBTAINED FROM MS. DEEPTI MAHAJAN, CEO LUDHIANA TRADING COMMODITY SERVICES, WHEREIN SHE HAD STATED THAT THE MAIN BROKER HAS TO BE THE MEMBER OF MULTIPLE COMMODITY EXCHANGE OF INDIA. TH E ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE SHOW ED HIS INABILITY TO PRODUCE THE SAID BROKER BEFORE HIM FOR EXAMINATION AND THAT IN RESPONSE TO THE SUMMONS ISS UED BY THE DEPARTMENT U/S 131(1 A) OF THE ACT, THE SAID BROKER SHRI SURESH KUMAR GUPTA HAD NOT APPEARED. T HE ASSESSING OFFICER ALSO COMPARED THE PARTICULARS MEN TIONED IN THE BILL ISSUED BY M/S SHIVAM COMMODITIES SERVIC ES AND THE BILL SUPPLIED BY GENUINE BROKERS DEALING IN DERIVATIVE TRADING OF COMMODITIES. THE ASSESSING O FFICER OBSERVED THAT THOUGH IN THE GENUINE BILLS TRADE TIM E BOTH FOR PURCHASE AND SALE REMAINS MOST IMPORTANT FACTOR , IN THE BILLS ISSUED BY THE SAID BROKER M/S SHIVAM COMMODITIES SERVICES THIS IMPORTANT INFORMATION WAS NOT AVAILABLE. SIMILARLY, KEY INGREDIENTS LIKE MCX CODE NO., NAME OF ITCM, ADDRESS OF ITCM, CONTACT NO., CODE OF THE CLIENT AND TRADE TIME AND BROKERAGE WERE MISSING IN THE BILLS ISSUED BY M/S SHIVAM COMMODITIES SERVICES THR OUGH SUCH DETAILS WERE AVAILABLE IN THE GENUINE BILLS IS SUED BY OTHER GENUINE BROKERS. 5. IN THE DETAILS FURNISHED BY THE ASSESSEE, THE PROFIT FROM DERIVATIVE TRADING WAS SHOWN AT RS.2,86,59,488 /-. THE LOSS OF RS.L1,02,544/- FROM DERIVATIVE TRADING OF COMMODITIES VIDE 22 DIFFERENCE BILLS WAS REDUCED FR OM THE 8 PROFIT AS ABOVE. THEREFORE, NET PROFIT FROM DERIVAT IVE TRADING OF COMMODITY WAS SHOWN BY THE ASSESSEE AT RS.2,75,56,944/-, HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM IN RESPECT OF THE LOSS OF RS.L1,02 ,544/- SHOWN BY THE ASSESSEE AS MENTIONED ABOVE. THIS WAS DONE BY THE ASSESSING OFFICER ON THE GROUND THAT TH E ASSESSEE HAD NOT BEEN ABLE TO PROVE THE IDENTITY/GENUINENESS AND THE ALLEGED PROFIT/MISC, R ECEIPTS FROM TRADING OF DERIVATIVES OF COMMODITIES. THE ASS ESSING OFFICER, THEREFORE, HELD THAT WITH RESPECT TO SUM O F RS.2,86,59,488/- WHICH HAVE BEEN CREDITED IN THE BO OKS OF THE ASSESSEE COMPANY, THE EXPLANATION OFFERED BY TH E ASSESSEE ABOUT THE NATURE AND SOURCE THEREOF WAS NO T SATISFACTORY. THE ASSESSING OFFICER, THEREFORE, CO NCLUDED THAT THE SUM SO CREDITED I.E. RS.2,86,59,488/- HAD TO BE CHARGED TO INCOME TAX AS OF THE ASSESSEE COMPANY O F THE PREVIOUS YEAR 2005-06 RELEVANT TO YEAR 2006-07 UNDE R SECTION 68 OF THE ACT. FURTHER THE ASSESSING OFFIC ER OBSERVED THAT THE INCOME HELD TO BE ASSESSABLE AT 2,86,59,488/- IN THIS CASE UNDER SECTION 68 OF THE ACT, COULD NOT BE BROUGHT UNDER HEADS OF THE INCOME SPEC IFIED UNDER SECTION 14 OF THE ACT. AS PER THE ASSESSING OFFICER, NO SOURCE OF THIS INCOME WAS DISCLOSED AT ALL OR TH E SOURCE EXPLAINED BY THE ASSESSEE WAS NOT SATISFACTORY. T HE ASSESSING OFFICER CONCLUDED THAT THE INCOME AS ABOV E WAS TO BE CHARGED UNDER SECTION 68 OF THE ACT, WHEREAS THE INCOME OTHERWISE ASSESSABLE BEING OF THE PRESCRIBED SOURCES INCLUDING 'INCOME FROM OTHER SOURCES' CONCL UDE AT 9 SECTION 59 OF THE ACT, WHICH IS THE LAST SECTION OF CHAPTER-IV. HE REFERRED TO THE PROVISIONS OF SECTI ON 68 OF THE ACT, WHICH STARTS WITH THE LINE 'SAVE AS OTHERW ISE PROVIDED BY THE ACT', HE, THEREFORE, OBSERVED THAT THE INCOME OF RS.2,86,59,488/- HAD BEEN CONCLUSIVELY PR OVED TO HAVE BEEN BOOKED THROUGH BOGUS AND FRAUDULENT ME ANS AND THAT JUST BECAUSE THE ASSESSEE HAD BROUGHT THE SAME IN THE BOOKS DID IN NO WAY REDUCE ITS LIABILITY TO PROVE THE ONUS OF GENUINENESS AND SOURCE OF SUCH INCOME. AS PER THE ASSESSING OFFICER, FOR BRINGING THE INCOME UNDE R THE HEAD 'OTHER SOURCES', THE SOURCE WOULD NEED TO BE K NOWN AND DEFINED. IN THE ABSENCE OF THE SAME, THE INCO ME WAS TO BE ASSESSED UNDER SECTION 68 OF THE ACT. THE ASSESSING OFFICER, THEREFORE, HELD THAT INCOME OF RS.2,86,59,488/- WAS TO BE CHARGED TO TAX UNDER SEC TION 68 OF THE ACT AND THAT YET IT DID NOT FALL WITHIN 4 CORNERS OF THE PRESCRIBED SOURCE OF INCOME AS PER SECTION 1 4 OF THE ACT. 6. THE ASSESSING OFFICER FURTHER EXAMINED THE PROVI SIONS OF SECTION 71 OF THE ACT. AS PER THE ASSESSING OF FICER, SINCE THE ABOVE MENTIONED INCOME ASSESSED UNDER SEC TION 68 OF THE ACT WAS NOT FALLING UNDER ANY HEAD OF INC OME MENTIONED IN SECTION14 OF THE ACT, THE PROVISIONS O F SECTION 71(1) DID NOT APPLY TO THE FACTS OF THE CAS E. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER ASSESSED T HE INCOME AT RS.2,86,9,488/- UNDER SECTION 68 OF THE A CT. THE ASSESSING OFFICER FURTHER REDUCED INCOME OF RS.2,75,56,944/-FROMTHENETPROFIT SHOWN BY THE ASSES SEE 10 IN THE RETURN OF INCOME UNDER THE HEAD BUSINESS AND PROFESSION. THIS RESULTED INTO CURRENT BUSINESS L OSS OF RS.2,71,15,616/- WHICH WAS ORDERED TO BE CARRIED FORWARD. FURTHER UNABSORBED BUSINESS LOSS OF RS.12,40,940/- FOR THE ASSESSMENT YEAR 2005-06 WAS ALSO ORDERED TO BE CARRIED FORWARD. THE CREDIT OF TAX AS PAID UNDER SECTION 115JB OF THE ACT WAS, HOWEVER , ALLOWED TO THE ASSESSEE. 7. THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESSI NG OFFICER BEFORE THE LEARNED CIT (APPEALS) AND SUBMIT TED WRITTEN SUBMISSIONS, WHICH ARE REPRODUCED IN THE IMPUGNED ORDER, IN WHICH THE ASSESSEE BRIEFLY EXPLA INED THAT THE ASSESSEE COMPANY IS CARRYING ON THE BUSINE SS OF MANUFACTURING AND SALE OF NON ALLOYS STEEL INGOTS. IN ADDITION TO THIS, DURING THE YEAR UNDER CONSIDERATI ON, THE ASSESSEE COMPANY HAS ENTERED INTO TRANSACTIONS FOR TRADING IN COMMODITIES THROUGH BROKER AND HAS EARNE D PROFIT OF RS.2.86 CRORES FROM THESE TRANSACTIONS. FURTHER THE ASSESSEE HAS ALSO SUFFERED LOSS OF RS.11,02,552 /- FROM THIS TRADING IN COMMODITY AND AS SUCH, THE COMPANY HAS EARNED NET PROFIT OF RS.2,75,56,944/-. THE COMPAN Y HAS DULY CREDITED AFORESAID PROFIT FROM TRADING IN COMM ODITIES TO THE PROFIT & LOSS ACCOUNT AND HAD SHOWN THE PROF IT AS INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS & GAINS OF BUSINESS AND PROFESSION IN ITS RETURN OF INCOME FILED. THE ASSESSEE ALSO SUFFERED LOSS FROM MANUFACTURING ACTIVITY, WHICH IS ALSO CHARGED UNDER THE HEAD PRO FITS & GAINS OF BUSINESS AND PROFESSION. THE ASSESSING O FFICER 11 ACCEPTED THE LOSS SUSTAINED BY THE ASSESSEE FROM MANUFACTURING ACTIVITY. THE ASSESSEE HAD MAINTAIN ED PROPER BOOKS OF ACCOUNT, WHICH ARE AUDITED AND THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THE ASSESSEE HAS ENTERED INTO GENUINE BUSINESS TRANSACT ION WITH THE BROKER AND NO CONCRETE MATERIAL HAS BEEN BROUGHT ON RECORD IN ORDER TO SUBSTANTIATE THAT THE INCOME IS NOT GENUINE OR SHAM. THE ASSESSEE ALLOWED THE BROKER TO RETAIN HIS AMOUNT IN ORDER TO GIVE THE BROKER MA RGIN FOR DOING TRADING ON BEHALF OF THE ASSESSEE. HENCE AL MOST MOST OF THE PERIOD DURING WHICH THE TRANSACTIONS WE RE DONE BY THE ASSESSEE COMPANY, IT FUNDS REMAINED WIT H THE BROKER. THE ASSESSING OFFICER CANNOT QUESTION AS TO HOW THE ASSESSEE HAD EARNED THE PROFIT. IT WAS NOT OB LIGATORY TO GIVE ADVANCE BEFORE ENTERING INTO THE TRANSACTIO N WITH THE BROKER BECAUSE THE TRANSACTION CAN BE ENTERED I NTO BY THE BROKER EVEN ON TELEPHONIC CALLS AND MEETING PERSONALLY. THE ASSESSEE COMPANY EARNED PROFITS F ROM COMMODITY TRADING TRANSACTIONS ON REGULAR BASIS. IT WAS SUBMITTED THAT THE SERVICE TAX IS CHARGEABLE AFTER A PARTICULAR LIMIT AND SINCE IN THIS CASE, THE BROKER MAY NOT HAVE CROSSED THE LIMIT UPTO WHICH THE EXEMPTION IS AVAILABLE. THEREFORE, THE SERVICE TAX MIGHT NOT H AVE BEEN PAID BY THE BROKER. IT IS NOT NECESSARY FOR ANY PERSON WHO IS DEALING IN COMMODITY THAT HE SHOULD BE REGIS TERED WITH THE MULTIPLE COMMODITY EXCHANGE OF INDIA AND H E CAN LAWFULLY DO THIS BUSINESS WITHOUT ANY REGISTRAT ION. 12 THE ASSESSEE HAS PRODUCED COMPLETE DETAILS BEFORE T HE ASSESSING OFFICER THAT THE ASSESSEE ALSO RECEIVED O UT OF PROFIT, RS.95 LACS FROM THE BROKER DURING THE YEAR UNDER APPEAL, OUT OF WHICH RS.90 LACS HAD BEEN RECEIVED F ROM THE BROKER BY DIFFERENT CHEQUES AND TRANSACTIONS WE RE CARRIED THROUGH BANKING CHANNEL. THEREFORE, THE TRANSACTIONS COULD NOT BE HELD TO BE BOGUS OR SHAME . THE ASSESSEE HAS VOLUNTARILY SHOWN THE INCOME FROM TRADING IN COMMODITIES IN THE RETURN OF INCOME FILE D ON RECORD. THEREFORE, THE PROVISIONS OF SECTION 68 OF THE ACT WOULD NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE BECAUSE THE INCOME WAS CREDITED IN THE BOOKS OF ACC OUNT AND SHOWN IN THE RETURN OF INCOME. THEREFORE, IT IS NOT A CASE WHERE ANY SUM WAS FOUND CREDITED IN THE BOOKS OF ACCOUNT, FOR WHICH NO EXPLANATION HAS BEEN OFFERED BY THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THERE ARE FI VE HEADS OF INCOME. THEREFORE, EVEN IF THE INCOME IS FROM U- DISCLOSED SOURCES, IT WOULD FALL UNDER THE HEADS OF INCOME ONLY AND AT THE BEST, COULD BE TREATED AS INCOME FROM OTHER SOURCES. THEREFORE, THERE IS NO QUEST ION OF NOT GIVING SET OFF AS PER SECTION 71 OF THE ACT. THERE IS NO OTHER OPTION AVAILABLE TO THE REVENUE DEPARTMENT . 8. THE LEARNED CIT (APPEALS) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER AND MATERIAL ON RECORD DELETED THE ADDITION AND ALLOWED THE APPEAL OF THE ASSESSEE ON THE ABOVE GROUNDS OF APPE AL. HIS FINDINGS IN THE IMPUGNED ORDER IN PARAS 6 TO 7. 3.3 ARE REPRODUCED AS UNDER: 13 6. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF T HE LD. COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. AS RIGHTLY SUBMITTED IN THE SUBMISSIONS OF THE LD. COUNSEL THE ASSESSMENT ORDER HAS RAISED 5 IMPORTANT QUESTIONS. ALL THE GROUNDS O F APPEAL OF THE APPELLANT ARE COVERED IN THESE QUESTI ONS IN PARA 2 OF THE WRITTEN SUBMISSIONS OF THE LD. COUNSEL REPRODUCED ABOVE, IT HAS ALSO BEEN MENTIONE D AS TO WHICH GROUNDS OF APPEAL ARE COVERED BY WHICH QUESTION. THE APPROACH OF THE LD. COUNSEL IN THIS REGARD APPEARS TO BE QUITE APT AND, THEREFORE, FOR DECIDING THIS APPEAL U WOULD BE CONVENIENT TO GO BY THESE QUESTIONS. 7. THE FIRST QUESTION IS WHETHER THE PROFIT EARNED FROM TRADING M COMMODITY OR LOSS SUFFERED BY THE APPELLANT FROM TRADING IN COMMODITY IS GENUINE OR INGENUINE AND SHAM. 7.1 THE A.O. HAS GIVEN VARIOUS REASONS FOR HIS COMING TO THE CONCLUSION THAT THESE TRANSACTIONS WE RE NOT GENUINE. FIRST SUCH OBSERVATION OF THE A.O. IS THAT THE APPELLANT HAS NOT INVESTED ANY MONEY WITH THE BROKER FOR EARNING SUCH HUGE INCOME. THE APPELLANT WAS GIVEN RS.5,00,000/- DURING THE PERIOD 2.5.2005 TILL 31.5.2005 IN CASH @ RS.20,000/- PER DAY LEAVIN G SUNDAYS WHEN NO TRANSACTION OF SALE/PURCHASE OF COMMODITY HAD TAKEN PLACE. DURING THE PERIOD 1.6.2005 TO 20.1.2006 NO PAYMENTS WERE RECEIVED BY THE APPELLANT THOUGH THERE WAS HEFTY CREDIT BALANCE OF RS.2,64,06,176/- ON 20.1.2006. NOT CARRYING OUT DAI LY PAY IN AND PAY OUT CLEARING HAS ALSO BEEN CONSIDERE D BY THE A.O. ADVERSELY IN THIS REGARD, NON PAYMENT O F SERVICE TAX BY THE BROKER IS ALSO CONSIDERED BY THE A.O. AGAINST THE APPELLANT FOR COMING TO THIS 14 CONCLUSION. THE A.O, HAS ALSO EXAMINED THE INCOME TAX RECORD OF THE BROKER AND AS PER HIM WITH RESPEC T TO THE INCOME SHOWN BY HIM HE WAS NOT IN A CAPACITY TO ADVANCE SUCH HUGE AMOUNT TO THE APPELLANT. NON REGISTRATION OF THE BROKER WITH MULTIPLE COMMODITY EXCHANGE OF INDIA AND NON RECORDING OF CERTAIN IMPORTANT ASPECTS AS COMPARED TO THE BILLS IN THE GENUINE TRANSACTIONS WERE ALSO CONSIDERED BY THE A. O. AGAINST THE APPELLANT TO CONSIDER THE TRANSACTIONS TO BE INGENUINE AND SHAM. THE ARGUMENTS OF THE LD. COUNSEL IN RESPECT OF THESE OBSERVATIONS OF THE A.O . ARE ALSO GIVEN IN THE WRITTEN SUBMISSIONS REPRODUCE D ABOVE. THE ID. COUNSEL HAS DEALT WITH THE ABOVE MENTIONED OBSERVATIONS OF THE A.O. ONE BY ONE. TH E CONTENTION OF THE LD. COUNSEL APPEARS TO BE QUITE JUSTIFIED. WHEN HUGE CREDIT ON ACCOUNT OF PROFIT EA RNED FROM THE DERIVATIVE TRADING IN COMMODITY OF THE APPELLANT WAS OUTSTANDING IN THE BOOKS OF ACCOUNT O F THE BROKER, THERE WAS NO REASON FOR THE APPELLANT N ET DEPOSING ANY ADVANCE ETC. FOR EARNING SUCH INCOME. I AGREE WITH THE LD. COUNSEL THAT GIVING OR NOT GIVIN G ADVANCE TO THE BROKER IN SUCH CIRCUMSTANCES DEPENDED UPON THE RELATIONSHIP BETWEEN THE BROKER AND THE CLIENT AND THAT THAT IN ITSELF CANNOT BE TA KEN TO PROVE THAT THE TRANSACTIONS IN QUESTIONS WERE GENUINE WHEN OTHERWISE BOTH THE PARTIES HAD CONFIRMED THE SAME. SIMILARLY LARGE AMOUNT OWED BY THE BROKER TO THE APPELLANT COULD RAISE CERTAIN SUSPICION WITH REGARD TO THE GENUINENESS OF THE TRANSACTION BUT AGAIN THAT CANNOT BE TAKEN TO PROVE THAT THE TRANSACTION WAS NOT GENUINE. ALSO I AGREE WITH THE LD. COUNSEL THAT IN VIEW OF THE EXPLANATIO N GIVEN IN THE SUBMISSIONS REPRODUCED ABOVE, THE BROK ER HAVING PAID NO SERVICE LAX ETC., WOULD NOT MAKE THE TRANSACTIONS ENTERED WITH HIM TO BE INGENUINE, AGAI N THE DISCREPANCIES OBSERVED BY THE A.O. IN THE DIFFERENCE BILLS ISSUED BY M/S SHIVAM COMMODITIES 15 SERVICES AND THE GENUINE BILL ISSUED BY THE OTHER BROKER COULD ALSO RAISE JUST CERTAIN SUSPICION BUT WHEN ADMITTEDLY M/S SHIVAM COMMODITIES SERVICES WAS NOT REGISTERED WITH MULTI COMMODITY EXCHANGE OF INDIA AND WHICH, AS PER THE SUBMISSIONS OF THE LD, COUNSEL ,30, WAS NOT ESSENTIAL FOR CARRYING OUT SUC H ACTIVITIES, THIS COULD NOT BE ALLOWED ADVERSELY AGA INST THE APPELLANT. 7.1.1 ALL THE ABOVE MENTIONED SO CALLED DISCREPANCIES TAKEN INTO ACCOUNT BY A.O. FOR CONSIDERING THE TRANSACTIONS OF THE APPELLANT WITH M/S SHIVAM COMMODITIES SERVICES TO BE INGENUINE HAVE BEEN MET BY THE LD. COUNSEL IN THE WRITTEN SUBMISSIONS REPRODUCED ABOVE. IN VIEW OF THE DETAIL ED SUBMISSIONS AS ABOVE I AM INCLINED TO AGREE THAT ON THE BAY IS OF THESE ALLEGED DISCREPANCIES IT COULD NOT BE CONCLUDED THAT THE TRANSACTIONS IN QUESTION WERE INGENUINE. EVEN OTHERWISE, FOR PROVING THE SAME CONCLUSIVELY, INQUIRIES WERE REQUIRED TO BE MADE FR OM M/S SHIVAM COMMODITIES SERVICES. AS THE APPELLANT SHOWED ITS INABILITY TO PRODUCE THE PROPRIETOR OF M /S SHIVAM COMMODITIES SERVICES, THE BROKER, THE A.O. ISSUED SUMMONS TO HIM U/S 131(1 A) OF THE ACT, AS P ER THE ASSESSMENT ORDER, THESE SUMMONS WERE DULY SERVED UPON THE SAID PROPRIETOR OF THIS CONCERN AND THAT HOWEVER HE DID NOT ATTEND BEFORE THE A.O, THE A.O, HAS DRAWN ADVERSE INFERENCE IN THIS REGARD AGAINST THE APPELLANT. HOWEVER, THE A.O. CANNOT BE SAID TO BE JUSTIFIED ON THIS ISSUE. IT IS NOT THE C ASE THAT THE SAID PROPRIETOR OF M/S SHIVAM COMMODITIES SERVICES LTD. WAS NON-EXISTENT OR BOGUS. RATHER SUMMONS ISSUED BY THE A.O. WERE DULY SERVED UPON THE SAID BROKER. THEREFORE, IF THE SAID BROKER HAD NOT ATTENDED BEFORE THE A.O. INSPITE OF SERVICE OF THE SUMMONS, AS PER SETTLED POSITION OF LAW, THE ADVERS E INFERENCE COULD NOT BE DRAWN AGAINST THE APPELLANT. 16 7.1.2 THE VARIOUS SO CALLED DISCREPANCIES POINTED OUT BY THE AO IN THIS CASE AND WHICH HAVE BEEN DISCUSSED ABOVE, COULD HAVE BEEN EXAMINED WITH REFERENCE TO THE BOOKS OF THE BROKER. THE A.O. HAS OBSERVED THAT THE BROKER WAS HAVING VERY LITTLE INC OME AND THAT HE COULD NOT OWE SUCH HUGE AMOUNTS TO THE APPELLANT OR SIMILAR OTHER CLIENTS. HOWEVER CORREC T POSITION IN THIS REGARD COULD HAVE BEEN KNOWN ONLY IF THE BOOKS OF ACCOUNTS OF THE BROKER WERE EXAMINED. A BROKER PURCHASES GOODS ON BEHALF OF ONE PERSON AND SELLS THE SAME ON BEHALF OF ANOTHER PERSON. THEREFO RE, AGAINST MONEY OWED TO THE SELLER HE HAS THE AMOUNTS RECEIVABLE FROM THE PURCHASERS. UNLESS THIS ENTIRE POSITION IS EXAMINED, IT COULD NOT BE CONCLUDED THA T A BROKER WHO WAS SHOWING SMALL INCOME COULD NOT OWE HUGE MONIES TO HIS CLIENTS. EVEN OTHERWISE, FOR E VERY TRANSACTION OF PURCHASE BY SUCH BROKER THERE HAS TO BE A CORRESPONDING TRANSACTION OF SALE. IN THE ABSENCE OF DETAILED INQUIRIES MADE WITH RESPECT TO BOTH THE SA LES AND PURCHASES IT WOULD NOT BE JUSTIFIED TO HOLD THE ENTIRE TRANSACTIONS ENTERED INTO BY ONE PARTY LIKE THE APPELLANT TO BE INGENUINE. THE GOODS ALLEGEDLY PURCHASED AND SOLD BY THE APPELLANT FROM THE BROKER WOULD HAVE BEEN FROM OR TO DIFFERENT PARTIES IN THE BOOKS OF THE BROKER. WITHOUT PROVING THAT THESE ALL WERE NON-EXISTENT OR INGENUINE PARTIES ETC, IT WOUL D NOT BE JUSTIFIED TO HOLD THE TRANSACTIONS TO BE INGEUINE, AS HELD BY THE A.O. 7.1.3 IN VIEW OF THE ABOVE DISCUSSION ITSELF THE A.O'S ACTION IN HOLDING THE TRANSACTIONS TO BE INGE UINE CANNOT BE UPHELD. EVEN OTHERWISE THE CASE OF THE APPELLANT IS TO BE SEEN KEEPING IN VIEW AN OTHER VE RY IMPORTANT ASPECT. THE APPELLANT HAS SHOWN THIS HUG E AMOUNT AS INCOME IN ITS RETURN OF INCOME. IT IS NOT A CASE WHERE ON THE BASIS OF THE ABOVE EVIDE NCE 17 THE APPELLANT HAD CLAIMED CERTAIN LOSSES ETC. TO RE DUCE ITS TAX LIABILITY. THEREFORE, THE ABOVE DISCUSSION COUPLED WITH THE FACT THAT THE APPELLANT HAD RATHER SHOWN HUGE INCOME FROM SUCH TRANSACTIONS, IT HAS TO BE HELD THAT THE TRANSACTIONS IN QUESTION WERE GENU INE TRANSACTIONS. THE GROUNDS OF APPEAL WITH REFERENCE TO THIS ASPECT I.E. GROUND NOS. L, 2 AND 4 ARE, THEREF ORE, ALLOWED. 7.2 THE NEXT QUESTION RAISED AS PER THE GROUNDS OF APPEAL NO.6 IS WHETHER THE INCOME WHICH HAS ALREADY BEEN DISCLOSED IN THE RETURN OF INCOME, FILED, WOUL D FULL UNDER THE PROVISIONS OF SECTION 68 OF THE ACT, OR NOT. 7.2.1 IN HOLDING AS ABOVE, THE A.O.OFFICER HAS GIV EN VARIOUS REASONS WHICH ARC ALREADY DISCUSSED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. THE A.O. IS OF THE VIEW THAT WHEN THE SOURCES OF THIS INCOME HAVE NOT BEEN SATISFACTORILY EXPLAINED, THE AMOUNT WAS REQUIRED TO BE ASSESSED U/S 68 OF THE ACT. HOWEVER, AS EXPLAINED IN THE WRITTEN SUBMISSIONS OF THE ID, COUNSEL REPRODUCED ABOVE, IN PARA 4, WHEN THE APPELLANT HAS SHOWN THIS AMOUNT AS ITS INCOME, THER E IS NO QUESTION OF CONSIDERING THIS INCOME AS DEEME D INCOME UNDER THE PROVISIONS OF SECTION 68 OF THE A CT. SECTION 68 OF THE ACT WOULD APPLY WHERE THERE IS A CREDIT IN THE BOOKS OF AN ASSESSEE AND WHICH CREDIT IS NOT THE INCOME. UNDER THE PROVISIONS OF THIS SECT ION IF THE SOURCE OF SUCH CREDIT IS NOT SATISFACTORILY EXPLAINED BEFORE THE A.O., THE AMOUNT IS TO BE CONSIDERED AS INCOME OF THE APPELLANT UNDER THE PROVISIONS OF SECTION 68 OF THE ACT. HOWEVER, IT I S NOT THE CREDIT BEING NON-INCOME CREDIT WHICH COULD BE EXAMINED FOR THE PURPOSES OF SECTION 68 OF THE ACT FOR CONSIDERING OR NOT CONSIDERING INCOME. THEREFORE, GROUND OF APPEAL NO.6 IS TO BE ALLOWED AND IT IS TO BE HELD THAT THE PROVISIONS OF SECTION 68 OF THE ACT A RE 18 NOT APPLICABLE TO THE CREDIT IN RESPECT OF THE AMOU NT WHICH IS ALREADY DISCLOSED AS INCOME BY THE APPELLANT. 7.3 THE NEXT ISSUE RAISED IN THE GROUNDS OF APPEAL IS WHETHER THE SO CALLED UNEXPLAINED CASH CREDITS U/S 68 OF THE ACT DO NOT FALL UNDER ANY OF THE 5 HEADS OF INCOME SPECIFIED UNDER SECTION 14 OF THE ACT AND TH AT THE APPELLANT IS NOT ENTITLED TO SET OFF OF HE LOSS FROM MANUFACTURING ACTIVITY AGAINST THE SAID INCOME. TH IS ISSUE HAS BEEN RAISED IN GROUND OF APPEAL NO.5, 7 AND 8 OF THIS CASE. 7.3.1 HERE AGAIN THE A.O. IS OF THE VIEW THAT THE 5 HEADS OF INCOME ARE CONTAINED FROM SECTION 15 TO 59 OF THE ACT AND THAT SECTION 68 OF THE ACT BEING NOT INCLUDED IN THESE SECTIONS THE INCOME ASSESSED UNDE R THE PROVISIONS OF SECTION 68 WOULD NOT FALL UNDER A NY OF HE HEADS OF INCOME GIVEN U/S 14 OF THE ACT WHICH ARE AS UNDER:- A. SALARIES B. [] C. INCOME FROM HOUSE PROPERTY D. PROFITS AND GAINS OF BUSINESS OR PROFESSION E. CAPITAL GAINS F. INCOME FROM OTHER SOURCES 7.3.2 THE CONTENTION OF THE LD. COUNSEL ARE CONTAINED IN PARA 5 OF THE WRITTEN SUBMISSIONS REPRODUCED ABOVE. THE LD. COUNSEL HAS EXPLAINED IN DETAIL AS TO HOW THE A.O. IS NOT CORRECT IN INTERPRETING THE PROVISIONS OF LAW IN THIS REGARD. I AGREE WITH THE LD. COUNSEL THAT THE A.O. IS NOT CORRECT IN CONCLUD ING AS ABOVE. INCOME OF ANY ASSESSES HAS TO BE TAXED UNDER ANY OF THE HEADS MENTIONED U/S 14 OF THE ACT ONLY. RATHER, AS RIGHTLY EXPLAINED BY THE LD, COUNS EL BY REFERRING TO CERTAIN DECISIONS INCLUDING THE DEC ISION OF THE HON'BLE MUMBAI HIGH COURT IN THE CASE OF 19 KEVALCHAND NEEMCHAND MEHTA VS. CIT (SUPRA), INCOME OF AN ASSESSES HAS TO BE BROUGHT TO TAX UNDER ONE O F THE HEADS GIVEN IN THE IT. ACT ONLY. IF THE INCOME ASSESSED U/S 68 OF THE ACT CANNOT BE BROUGHT UNDER ANY OF THE HEADS BEING SALARY, INCOME FROM HOUSE PROPERTY, PROFIT AND GAINS OF BUSINESS OR PROFESSIO N OR CAPITAL GAINS, THIS HAS TO BE BROUGHT UNDER THE RESIDUARY HEAD OF 'INCOME FROM OTHER SOURCES'. THE LD. COUNSEL HAS TAKEN PAIN IN THE WRITTEN SUBMISSIO NS REPRODUCED ABOVE TO EXPLAIN AS TO HOW SUCH INCOME I S TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. ALSO 1 AGREE WITH THE LD. COUNSEL THAT EVE N UNDISCLOSED INCOME, IF ANY, IS TO BE ASSESSEDUNDER ONE OF THE HEADS OF INCOME MENTIONED ABOVE ONLY. T HE INCOME OF THE APPELLANT FROM THE DERIVATIVE TRADING IN COMMODITIES COULD BE INCOME FROM UNDISCLOSED SOURCES, BUT IT HAS TO BE ASSESSED UNDER ONE OF THE SPECIFIED HEADS ONLY. RATHER, AS RIGHTLY POINTED O UT BY THE LD. COUNSEL, IN VIEW OF THE VARIOUS DECISION S INCLUDING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF NALINIKANT AMBALA MODY V. S.A.L. NARAYA N ROW, CIT (SUPRA), IF ANY, RECEIPTS ARE SHOWN TO BE NOT CHARGEABLE UNDER ANY OF THE HEADS OF INCOME, SUCH RECEIPTS WOULD NOT BE CHARGEABLE TO TAX AT ALL. TH E LD. COUNSEL HAS FURTHER REFERRED TO ANOTHER SET OF DECISIONS IN THIS REGARD IN THE SUBMISSIONS REPRODU CED ABOVE. KEEPING IN VIEW THE ABOVE DISCUSSED POSITION THE FINDINGS OF THE A.O. THAT THE INCOME ASSESSED B Y HIM U/S 68 OF THE ACT IS NOT TO BE ASSESSED UNDER A NY ONE OF THE HEADS MENTIONED U/S 14 OF THE ACT, CANNO T BE UPHELD. WITHOUT PREJUDICE TO THE ABOVE FINDINGS, EVEN OTHERWISE IT HAS BEEN HELD WHILE DEALING WITH EARLIER GROUNDS OF APPEAL THAT THE A.O. COULD NOT ASSESS THIS INCOME U/S 68 OF THE ACT. THEREFORE, ON CE IT HAS BEEN HELD AS ABOVE EVEN OTHERWISE THERE IS N O NEED FOR FURTHER DECIDING AS TO WHETHER THE INCOME ASSESSED U/S 68 OF THE ACT COULD BE ASSESSED UNDER 20 ANY ONE OF THE HEADS MENTIONED U/S 14 OF THE ACT OR NOT. 7.3.3 COMING TO THE ISSUE OF SET OFF OF LOSS FROM MANUFACTURING ACTIVITY AGAINST THE SAID INCOME, ONC E IT HAS BEEN HELD THAT THE INCOME OF THE APPELLANT F ROM DERIVATIVE TRADING OF COMMODITY IS NOT TO BE ASSESS ED U/S 68 OF THE ACT, AND THAT IT IS TO BE TAXED UNDER ONE OF THE HEADS MENTIONED U/S 14 OF THE ACT, THE FINDI NGS OF THE A.O. WOULD NOT HOLD AS FAR AS SETTING OFF OF THIS INCOME WITH THE BUSINESS LOSS OF THE APPELLANT IS CONCERNED. THERE IS NO DISPUTE THAT AS PER THE PROVISIONS OF SECTION 71 OF THE ACT LOSSES EXCEPT U NDER THE HEAD CAPITAL GAINS ARE TO BE SET OFF WITH THE CURRENT INCOME FROM ANY SOURCE UNDER ANY HEADS. TH E A.O. HAS HELD AS ABOVE ON THE GROUND THAT THE INCOM E ASSESSED U/S 68 OF HE ACT DOES NOT FALL UNDER ANY O F THE HEADS OF INCOME MENTIONED U/S 14 OF THE ACT. TH IS FINDING OF THE A.O. HAS HOWEVER NOT BEEN ACCEPTED WHILE DEALING WITH OTHER ISSUES IN THE PRECEDING PARAGRAPHS IN THIS ORDER. IN THE WRITTEN SUBMISSION S OF THE LD. COUNSEL VARIOUS DECISIONS HAVE BEEN BROUGHT OUT IN SUPPORT OF THE CLAIM. HOWEVER WITHOU T REFERRING TO EVEN THESE DECISIONS THE STAND OF THE APPELLANT DESERVES TO BE UPHELD AS THE BASIC FINDIN G OF THE A.O. I.E. THE INCOME FROM TRADING IN DERIVAT IVES OF COMMODITIES ARE NOT TAXABLE UNDER ANY ONE OF THE HEADS OF INCOME GIVEN U/S 14 HAVING BEEN NEGATED, THE ENTIRE CASE OF THE A.O. IN THIS REGARD WOULD FA LL. IN VIEW OF THE ABOVE, THE GROUNDS OF APPEAL NOS.5, 7 A ND 8 ARE TAKEN TO HAVE BEEN ALLOWED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD. 21 10. THE LEARNED D.R. FOR THE REVENUE RELIED UPON T HE ORDER OF THE ASSESSING OFFICER AND RELIED UPON THE DECISION IN THE CASE OF P.MOHAN KALA, 291 ITR 278 WITH REGAR D TO UNEXPLAINED GIFT. 11. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS OFFERED THE INCOME IN THE RETURN OF INCOME FROM TRA DING IN COMMODITIES UNDER THE HEAD PROFITS & GAINS OF BUSI NESS OR PROFESSION. THE ASSESSING OFFICER ACCEPTED TH E LOSS SUSTAINED BY THE ASSESSEE FROM MANUFACTURING ACTIVI TIES. THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT IN WHICH NO DEFECTS HAVE BEEN POINTED OUT. THE ASSESSEE HA S CORRECTLY CLAIMED SET OFF OF LOSSES SUSTAINED FROM MANUFACTURING ACTIVITIES AGAINST THE NET PROFITS EA RNED FROM TRADING IN COMMODITIES. SECTION 68 OF THE AC T WOULD NOT APPLY IN THE CASE OF THE ASSESSEE. THERE IS N O NEED TO GIVE ANY ADVANCE TO THE BROKER BEFORE ENTERING INTO THE TRANSACTIONS. THE ASSESSEE HAD ALLOWED THE BROKER TO RETAIN THE PROFITS EARNED IN ORDER TO GIVE MORE MAR GIN AND MOST OF THE TIMES, THE FUNDS REMAINED WITH THE BROK ER. IT IS NOT THE CONCERN OF THE ASSESSEE THAT PAY IN AND PAY OUT SHOULD BE CLEARED ON THE SAME DAY. THE COPIES OF A CCOUNT WITH THE BROKER TALLY. IT IS NONE OF THE CONCERN O F THE ASSESSEE WHY THE BROKER HAD NOT PAID SERVICE TAXES. IT MIGHT BE BECAUSE OF THE BROKER MIGHT HAVE NOT CROSS ED THE 22 LIMIT UPTO WHICH THE EXEMPTION IS AVAILABLE. THE BROKER HAS MAINTAINED PROPER BOOKS OF ACCOUNT AND IS ASSES SED TO TAX AND HAS SHOWN THE TRANSACTIONS WITH THE ASSE SSEE. IT IS NOT ESSENTIAL THAT THE BROKER DEALING WITH TH E COMMODITIES SHOULD BE REGISTERED WITH ANY AUTHORITY . IN THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS RECEIVED PROFITS THROUGH CHEQUE AND BALANCE WAS REC EIVED NEXT YEAR AND NO MATERIAL HAS BEEN BROUGHT ON RECOR D BY THE ASSESSING OFFICER TO PROVE THE TRANSACTIONS OF THE ASSESSEE WITH THE BROKER TO BE BOGUS OR SHAME. TH E SUMMON UPON THE BROKER HAVE BEEN SERVED AND IN CASE THE BROKER DID NOT APPEAR BEFORE THE ASSESSING OFFICER, NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESS EE. THE ASSESSEE DISCLOSED INCOME VOLUNTARILY AND FURNI SHED DOCUMENTARY EVIDENCE BEFORE THE ASSESSING OFFICER. THEREFORE, NO ADDITION COULD BE MADE AGAINST THE ASSESSEE. THE INCOME COULD BE ASSESSED UNDER THE H EADS OF INCOME PROVIDED IN INCOME TAX ACT AND SET OFF OF MANUFACTURING LOSSES COULD BE GIVEN SET OFF WITH TH E COMMODITY PROFITS. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND DO NOT FIND ANY MERIT N THE DEPARTMENTAL APPEAL. SECTION 68 O F THE INCOME TAX ACT PROVIDES AS UNDER :- 68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND T HE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, 23 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. 14. THE NECESSARY INGREDIENTS FOR APPLYING THE ABOV E SECTION WOULD BE THAT THERE SHOULD BE ANY SUM IS FOUND CREDITED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AN D THE ASSESSEE FAILED TO OFFER ANY EXPLANATION ABOUT THE NATURE AND SOURCE OF THE SUM. THE SUM SHOULD BE FOUN D CREDITED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER, THE WORDS SUM IS NOT EQUIVALENT TO THE W ORD INCOME AND AS SUCH, THERE IS WIDE DIFFERENCE BETW EEN SUM AND THE INCOME. IN THE CASE OF THE ASSESS EE, NO SUM WAS FOUND TO BE CREDITED IN THE BOOKS OF ACCO UNT OF THE ASSESSEE. THEREFORE, THERE IS NO QUESTION OF SEEKING THE EXPLANATION OF THE ASSESSEE ON THE SAME. ON T HE OTHER HAND, THE ASSESSEE HAS SHOWN THE INCOME EARNE D FROM TRADING IN COMMODITIES AT RS.2.75 CRORES AND DECLARED IN THE RETURN OF INCOME. THEREFORE, THER E IS NO QUESTION OF APPLYING THE PROVISIONS OF SECTION 68 O F THE INCOME TAX ACT AGAINST THE ASSESSEE FOR THE PURPOSE OF MAKING ADDITION. FURTHER VARIOUS HEADS OF INCOME HAD BEEN PROVIDED UNDER THE INCOME TAX ACT, UNDER WHICH THE INCOME OF THE ASSESSEE COULD BE ASSESSED. THEREFO RE, WHOLE BASIS OF THE ASSESSING OFFICER WAS INCORRECT IN MAKING THE ADDITION IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAS PRODUCED ALL EVIDENCE AND CONFIRMATION OF THE BROKER CONFIRMING THE TRANSACTIONS WITH THE ASS ESSEE. THE BROKER IS ASSESSED TO TAX. NO SPECIFIC DEFECT S IN THE 24 BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE HAVE BE EN FOUND. THERE WAS NO NEED TO MAKE INVESTMENT PRIOR TO ENTERING INTO THE COMMODITIES TRANSACTIONS WITH THE BROKER. THE ASSESSEE EXPLAINED THAT THE BROKER HA S RETAINED THE PROFITS EARNED IN ORDER TO GIVE MARGIN . THEREFORE, THE FUNDS WERE ALREADY AVAILABLE WITH TH E BROKER FOR ENTERING INTO THE TRANSACTIONS IN COMMOD ITIES. THERE IS NO RULE THAT THE BROKER SHOULD BE REGISTER ED WITH ANY GOVERNMENT ORGANIZATION FOR ENTERING INTO THE COMMODITIES TRANSACTIONS AND WHY THE BROKER HAS NOT PAID SERVICE TAX IS NOT THE CONCERN OF THE ASSESSEE COMP ANY. THE BROKER WAS SUMMONED BY THE ASSESSING OFFICER AT THE GIVEN ADDRESS. THEREFORE, IT WOULD PROVE THAT THE BROKER WAS GENUINE AND CORRECTLY ENTERED INTO THE TRANSACT IONS WITH THE ASSESSEE. IF THE BROKER DESPITE SERVICE O F THE SUMMON DID NOT APPEAR BEFORE THE ASSESSING OFFICER, NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESS EE. THE ASSESSEE FURTHER EXPLAINED THAT IT HAS RECEIVED OUT OF PROFITS RS.95 LACS FROM THE BROKER IN THE YEAR UNDE R CONSIDERATION, OUT OF WHICH RS.90 LACS HAVE BEEN RE CEIVED BY CHEQUE AND REST IN THE NEXT YEAR. THE ASSESSING OFFICER HAS NOT BROUGHT ANY CONCRETE EVIDENCE TO PR OVE THE TRANSACTIONS OF THE ASSESSEE WITH THE BROKER TO BE BOGUS OR SHAME. THE ASSESSING OFFICER MERELY SUSPECTED THE TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE AND BROKER. HOWEVER, IT IS WELL SETTLED LAW THAT SUSP ICION, HOWSOEVER MAY BE STRONG, CANNOT TAKE PLACE OF PROOF . THE LEARNED CIT (APPEALS), THEREFORE, ON PROPER APPRECI ATION OF 25 THE FACTS AND MATERIAL ON RECORD CORRECTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THE TRANSAC TIONS OF THE ASSESSEE WITH M/S SHIVAM COMMODITIES SERVICES T O BE GENUINE. IT IS A DEPARTMENTAL APPEAL AND IN THE A BSENCE OF ANY SPECIFIC MATERIAL AGAINST THE ASSESSEE ON RE CORD, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT (APPEALS). THE LEARNED CIT (APPEA LS) WAS ALSO JUSTIFIED IN HOLDING THAT THE INCOME OF THE AS SESSEE IS TO BE TAXED UNDER ANY OF THE HEADS OF INCOME MENTIO NED IN SECTION 14 OF THE INCOME TAX ACT ONLY. THE FINDIN GS OF THE ASSESSING OFFICER HAVE, THEREFORE, BEEN CORRECT LY SET ASIDE BY THE LEARNED CIT (APPEALS). ONCE IT HAS B EEN HELD THAT THE INCOME OF THE ASSESSEE FROM DERIVATIVE TRA DING OF COMMODITIES IS NOT TO BE ASSESSED UNDER SECTION 68 OF THE INCOME TAX ACT, THE ASSESSING OFFICER SHOULD NOT HA VE DENIED THE SET OFF OF THE CURRENT INCOME FROM ANY S OURCE UNDER ANY HEAD. SINCE THE LEARNED CIT (APPEALS) D ID NOT ACCEPT THE FINDINGS OF THE ASSESSING OFFICER WITH R EGARD TO THE SOURCE OF INCOME, THEREFORE, ACCORDING TO SECTI ON 71 OF THE INCOME TAX ACT, THE ASSESSEE WOULD BE ENTITLED TO SET OFF OF THE LOSSES. THE LEARNED CIT (APPEALS) ON P ROPER APPRECIATION OF MATERIAL ON RECORD, HAD CORRECTLY D ECIDED THE ISSUES IN FAVOUR OF THE ASSESSEE. WE, THEREFO RE, DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT (APPEALS) IN DECIDING AL THE ABOVE ISSUES IN FAVOUR OF THE 26 ASSESSEE. THE DEPARTMENTAL APPEAL THUS HAS NOT ME RIT AND IS LIABLE TO BE DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF NOVEMBER, 2014. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25 TH NOVEMBER, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH