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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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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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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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
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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
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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
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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
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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
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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
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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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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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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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