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Shri P. Subramanian,No. 80-A, P.V. Krishnan Street,K.K. Pudur, Coimbatore 641 038. Vs. The Income Tax Officer, Ward II (2),Coimbatore
July, 28th 2012
             IN THE INCOME-TAX APPELLATE TRIBUNAL
                       `A' BENCH, CHENNAI.

              Before Shri N.S. Saini, Accountant Member &
             Shri Challa Nagendra Prasad, Judicial Member

                       I.T.A. No. 1363/Mds/2010
                      Assessment Year : 2007 - 08

Shri P. Subramanian,                      The Income Tax Officer,
No. 80-A, P.V. Krishnan Street,       Vs. Ward II (2),
K.K. Pudur, Coimbatore 641 038.           Coimbatore.
[PAN: AOMPS8963A]

            (Appellant)                                (Respondent)

                       Appellant by    :   Shri S. Sridhar, Advocate
                    Respondent by      :   Shri T.N. Betgeri, JCIT
                    Date of Hearing    :   12.07.2012
            Date of pronouncement      :   26.07.2012




                                  ORDER

PER Challa Nagendra Prasad, Judicial Member


      This is an appeal filed by the assessee against the order of the

Commissioner of Income Tax (Appeals) I, Coimbatore in Appeal No. 219/09-

10 for the assessment year 2007-08. Shri S. Sridhar, Advocate represented

on behalf of the assessee and Shri T.N. Betgeri, JCIT represented on behalf

of the Revenue.


2.    The only issue in the grounds of appeal of the assessee is that the

Commissioner of Income Tax (Appeals) erred in not allowing set off of loss
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                                                                       No.1363/M/
                                                                I.T.A. No.1363/M/10


computed under the head "Profit and gains of business" against income

assessed as unexplained investment under section 69 of the Act.


3.    The facts of the case are that the assessee is an individual filed the

return of income for the assessment year 2007-08 on 31.07.2007 admitting

income of `.1,98,210/-. The assessment was completed under section

143(3) of the Act on 23.12.2009 determining total income of the assessee at

`.31,98,212/-. While completing the assessment, the Assessing Officer

made an addition of `.30.00 lakhs representing the credits in the saving

bank account of the assessee treating them as unexplained investment

under section 69 of the Act. The Assessing Officer did not allow set off of the

business loss against such income, because addition was made towards

unexplained investment under section 69 on the ground that the income of

`.30.00 lakhs does not fall under the head "income from other sources".

Therefore, according to the Assessing Officer, it cannot be set off against

business loss of the assessee in view of the decision of the Hon'ble Gujarat

High Court in the case of Fakir Mohammed Haji Hasan v. CIT [247 ITR 290].


4.    On appeal, the Commissioner of Income Tax (Appeals) dismissed the

appeal of the assessee agreeing with the view taken by the Assessing

Officer. Against this order of the Commissioner of Income Tax (Appeals), the

assessee is in appeal before us.
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                                                                       No.1363/M/
                                                                I.T.A. No.1363/M/10


5.    The counsel for the assessee submits that the Assessing Officer

computed the total income of the assessee at `.31,98,212/- without allowing

inter-head set off contemplated under section 71 of the Act in respect of loss

from the business of `.32,24,020/-     determined by the Assessing Officer

himself in the assessment order relying on the decision of the the      Hon'ble

Gujarat High Court in the case of Fakir Mohammed Haji Hasan v. CIT

(supra). The counsel submits that the ratio of the decision of the Hon'ble

Gujarat High Court was rendered on a peculiar facts involved in that case

and the said ratio has no bearing on the facts of the assessee's case. The

counsel submits that the facts before the Hon'ble Gujarat High Court was

that the assessee claimed the value of gold confiscated, as deduction from

income as `trading loss'. The assessee did not derive any income from the

business of smuggling. Therefore, it was held that the confiscation of gold

did not represent trading loss in the hands of the assessee. Whereas, in the

case of the assessee, there is no dispute that the assessee incurred loss

under the `head business in trading of shares' and the assessee made

certain cash deposits into his savings bank account for which the assessee

could not explain the source. Therefore, since the assessee could not prove

the source for such cash deposits in to savings bank account, the same are

assessable under the head `income from other sources' and the losses from

business are to be allowed as set off against the income from other sources

in accordance with the section 71 of the Act. Therefore, the counsel for the
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                                                                      No.1363/M/
                                                               I.T.A. No.1363/M/10


assessee submits that the addition of `.30.00 lakhs made by the Assessing

Officer is also an income and cannot be excluded from the total income of

the Act and therefore, shall be chargeable under the head "other sources".

The counsel further submitted that as per section 4 of the I.T. Act, the

income tax is payable on the total income of the previous year of every

person. He submitted that section 5 defines the scope of total income and as

per section 14, all the income shall, for the purpose of charge of income tax

and computation of total income be classified under the following five heads.

      i)     Salaries
      ii)    Income from house property
      iii)   Profits and gains of business or profession
      iv)    Capital gains
      v)     Income from other sources

He submitted that by harmonious construction of section 4, 5 and 14, all

income must be brought under any one of the five heads only. According to

section 56(1), income which is not otherwise chargeable under heads

specified in A to E of section 14 shall be chargeable under the head "income

from other sources". The counsel for the assessee relied on the decision of

the Hon'ble Supreme Court in the case of CIT v. D. P. Sandu Bros. Chembur

P. Ltd.[273 ITR 1] in support his contention that income assessed under

section 68/69 shall, for the purpose of charge of income and computation

shall fall under any one of the heads of income as specified in section 14 of

the Act. The counsel submits that the decision of the Hon'ble Gujarat High

Court in the case of Fakir Mohammed Haji Hasan vs. CIT (supra) relied on
                                      5                                   1363/M/10
                                                                       No.1363/M/
                                                                I.T.A. No.1363/M/10





by the Assessing Officer/Commissioner of Income Tax (Appeals) is impliedly

overruled by the Hon'ble Supreme Court in the case of CIT vs. D.P. Sandu

Bros. Chembur (P) Ltd. (supra).      The counsel further submitted that the

unexplained cash deposits into SB account deemed as income under

section 68/69 is also income chargeable to tax and shall form part of total

income. Therefore, he submits that such deemed income also shall be

assessed under any one of the five heads specified under section 14 of the

Act. He submits that if the assessee is able to prove that the credit must fall

under any particular head then the deemed income shall fall under that

particular head. In case, the assessee is unable to prove so, then the

deemed income would fall under the head "other sources". The counsel

submits that in case of assessee, which is carrying on the business in

trading of shares, income is chargeable to tax under the head business and

the normal inference is that deemed income also flows from business only.

Since the assessee was not able to prove that the said cash deposits of

`.30.00 lakhs made into his SB account, such deposits are assessable as

income from other sources.


6.    The counsel for the Revenue supported the orders of lower

authorities.


7.    We have heard both sides, perused the orders of lower authorities and

materials available on record and case law relied on by the counsel. During
                                      6                                   1363/M/10
                                                                       No.1363/M/
                                                                I.T.A. No.1363/M/10


the assessment year, the assessee made cash deposits into his savings

bank account for an amount of `.37.00 lakhs. The assessee explained

sources for deposit of cash into bank account between December, 2006 and

February, 2007 for `.7.00 lakhs that these deposits were made from out of

the amount received towards account from Fortune Wealth Management

Company India (P) Ltd. through account payee cheques. The assessee

submitted that the cash deposits made in the month of April, 2006 for an

amount of `.5.00 lakhs is from out of his personal savings and in respect of

the deposits of `.25.00 lakhs made between may, 2006 and July, 2006, the

assessee could not give any explanation and therefore offered the same as

his income from other sources. The Assessing Officer while completing the

assessment accepted the explanation of the assessee in respect of cash

deposits of `.7.00 lakhs made into bank account and treated the balance

cash deposits of `.30.00 lakhs as unexplained investment under section 69

and assessed as deemed income. The Assessing Officer did not allow set

off of loss determined from trading of shares because the deemed income

was assessed as unexplained investment under section 69 and the deemed

income shall not fall under any of the heads of income. Therefore, the

Assessing Officer rejected the claim for inter-head set off of loss claimed by

the assessee. In coming to this conclusion, the Assessing Officer and also

the Commissioner of Income Tax (Appeals) relied on the decision of the
                                       7                                    1363/M/10
                                                                         No.1363/M/
                                                                  I.T.A. No.1363/M/10


Hon'ble Gujarat High Court in the case of Fakir Mohammed Hazi Hasan vs.

CIT (supra).


8.    The facts in the decision of the Hon'ble Gujarat High Court are that the

Custom Department had seized 2320 tolas of gold of foreign origin valued at

`.48,72,000/- while smuggling by the assessee and was confiscated. The

Assessing Officer found that the assessee was the owner of the gold, which

was found concealed in the car and the value of the gold was, therefore,

added in assessee's income, which finding was confirmed by the

Commissioner of Income Tax (Appeals). The Tribunal held that the value of

the gold was liable to be added as income of the assessee under section

69A of the Act. The Tribunal also found that it was not the assessee's case

that it was derived any income from any business of smuggling and,

therefore, it could not be said that confiscation of gold represented a trading

loss in the hands of the assessee. Therefore, it was held that no deduction

could be allowed as claimed by the assessee. Under the circumstances, the

Hon'ble Gujarat High Court held that the source not being known, such

deemed income will not fall even under the head `other sources' and

therefore, the Tribunal was perfectly right in holding that the value of the gold

was liable to be included in the income of the assessee as the source of

investment in the gold or of its acquisition was not explained and that the
                                        8                                     1363/M/10
                                                                           No.1363/M/
                                                                    I.T.A. No.1363/M/10


assessee was not entitled to claim that the value of the gold should be

allowed as a deduction from his income.


9.    The Mumbai Bench of ITAT in the case of ITO v. Dharambir Hansraj

Agarwal [23 ITD 589] observed that section 68 does not expressly state as

to under what head the said income should be assessed. Section 68 is silent

about the head under which the said income should be assessed. The

Assessing Officer has to look to the surrounding circumstances in order to

determine the head of income under which the said income should be

assessed. The Tribunal observed as under:


      "2.     We have heard the parties. Section 68 of the Income-tax Act,
      1961, on which the Income-tax Officer has relied lays down that 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 Income-tax Officer, satisfactory, the sum so credited
      may be charged to income-tax as the income of the assessee of that
      previous year. In the present case, the assessee has offered an
      explanation about the nature and source of the sums credited in the
      books of the assessee. It is submitted on his behalf these cash amounts
      were received as price of the showrooms sold and that they represented
      amounts which were, over and above, the amounts mentioned in the
      agreements with the purchasers. There was absolutely no reason to
      disbelieve the said explanation. Consequently, the amounts in question
      should have been treated as trading receipts as pleaded by the
      assessee.

      3.     Even if we hold that the explanation of the assessee about the
      nature and source of those amounts was not satisfactory, as has been
      held by the Income-tax Officer, the only consequence thereof would be
      that sums credited in the books of the assessee would be liable to be
      charged to income-tax, as the income of the assessee of the previous
      year in which the books were maintained. Section 68 does not expressly
                                        9                                      1363/M/10
                                                                            No.1363/M/
                                                                     I.T.A. No.1363/M/10


      state as to under what head the said income should be assessed. Section
      68 is silent about the head under which the said income should be
      assessed. Consequently, the assessing authority has to look to the
      surrounding circumstances in order to determine as to under what head
      the said income should be assessed."


10.   The Hon'ble High Court of Andhra Pradesh in the case of CIT v.

Maduri Rajaiahgari Kistaiah [120 ITR 294] held that the ITO is not only

prevented, but also entitled him to treat the unexplained cash credits as

income from undisclosed source, which falls under the head `income from

other sources', which falls under head income from other sources. The

Hon'ble High Court held as under:


      "5. The same view has been reiterated by the Supreme Court in C1T v.
      Devi Prasad Vishwanath Prasad . The learned judge, Shah J. (as he
      then was), speaking for the court, ruled thus :

            " There is nothing in law which prevents the Income-tax Officer
            in an appropriate case in taxing both the cash credit, the source
            and nature of which is not satisfactorily explained and the
            business income estimated by him under Section 13 of the
            Income-tax Act, after rejecting the books of account of the
            assessee as unreliable......... Whether in a given case the Income-
            tax Officer may tax the cash credit entered in the books of
            account of the business, and at the same time estimate the profit
            must, however, depend upon the facts of each case...... Where
            there is an unexplained cash credit, it is open to the Income-tax
            Officer to hold that it is income of the assessee and no further
            burden lies on the Income-tax Officer to show that that income is
            from any particular source. It is for the assessee to prove that
            even if the cash credit represents income it is income from a
            source which has already been taxed."

      The aforesaid decisions of the Supreme Court are authorities for the
      proposition that the fact that the entries are found in the books of
      account of the business whose income had already been computed on
                                         10                                     1363/M/10
                                                                             No.1363/M/
                                                                      I.T.A. No.1363/M/10


      the basis of the estimate but not on the return filed by the assessee, not
      only does not prevent the ITO from treating, but entitles him to treat,
      the unexplained cash credits as income from an undisclosed source
      which falls under the head "Income from other sources" unless the
      assessee, by independent and satisfactory evidence, establishes that
      those amounts relate or are referable to the undisclosed income of the
      very known or disclosed source, namely, the business whose income
      had already been estimated. We may add that a Division Bench of this
      court consisting of one of us (Kondaiah J.) and Sriramulu J in C1T v.
      Janab Mohd. Suleman (Referred Case No. 13 of 1968 dated 11-11-
      1970) and Kesarimal Sohanraj v. CIT expressed the same view on
      similar facts and circumstances."


11.   The Hon'ble Supreme Court in the case of CIT v. D. P. Sandu Bros.

Chembur P. Ltd (supra), while deciding whether the amount received by the

assessee on surrender of tenancy rights is liable to capital gains tax under

section 45 of the Income-tax Act held as under:


      "Section 14 of the Income-tax 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 of business or profession;
      (E) Capital gains;
      (F) Income from other sources unless otherwise, provided in the Act.

      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."
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                                                                      No.1363/M/
                                                               I.T.A. No.1363/M/10




12.   The Hon'ble Supreme 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. It was held that if the income is

included in any one of the heads, it cannot be brought to tax under the

residuary provisions of section 56. Therefore, as observed by the Hon'ble

Supreme Court that all income for the purpose of charge of income tax and

computation of total income, the income should fall under any one of the

head as specified under section 14 of the Act. In view of the decision of the

Hon'ble Supreme Court, the cash deposits made into SB account of the

assessee assessed as unexplained investment under section 69 by the

Assessing Officer shall, for the purpose of charge of income tax and

computation of total income shall fall under any one of the 5 heads specified

under section 14 of the Act. In this case, since the assessee has not given

any explanation about the source of cash deposits made into his saving

bank account, it is not proved that this income is generated from out of his

business of trading in shares. Since the assessee did not prove that the

deemed income is liable to be taxed under any particular head, such

deemed income shall fall under the head `income from other sources'.

Therefore, the unexplained cash deposits into SB account assessed as

income under section 69 are assessable under the head `income from other
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                                                                      No.1363/M/
                                                               I.T.A. No.1363/M/10


sources'. Therefore, the Assessing Officer is directed to allow set off of

business loss against income from other sources in accordance with the

provisions of section 71 of the Income Tax Act. The grounds raised by the

assessee are allowed.

13.    In the result, the appeal of the assessee is allowed.


       Order pronounced on Thursday, the 26th of July, 2012 at Chennai.



Sd/-                                                              Sd/-
(N.S. SAINI)                                (CHALLA NAGENDRA PRASAD)
ACCOUNTANT MEMBER                                     JUDICIAL MEMBER

Chennai, Dated, the 26.07.2012

Vm/-

To: The assessee//A.O./CIT(A)/CIT/D.R.
 
 
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