2012-VIL-964-ITAT-CHE

Income Tax Appellate Tribunal CHENNAI

I.T.A. No. 1363/Mds/2010

Date: 26.07.2012

SHRI P. SUBRAMANIAN

Vs

THE INCOME TAX OFFICER, WARD II (2) , COIMBATORE.

BENCH

Shri N.S. Saini & Shri Challa Nagendra Prasad, JJ.

JUDGMENT

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 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 Rs..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 Rs..31,98,212/-. While completing the assessment, the Assessing Officer made an addition of Rs..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 Rs..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.

5. The counsel for the assessee submits that the Assessing Officer computed the total income of the assessee at Rs..31,98,212/- without allowing inter-head set off contemplated under section 71 of the Act in respect of loss from the business of Rs..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 assessee submits that the addition of Rs..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 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 Rs..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 the assessment year, the assessee made cash deposits into his savings bank account for an amount of Rs..37.00 lakhs. The assessee explained sources for deposit of cash into bank account between December, 2006 and February, 2007 for Rs..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 Rs..5.00 lakhs is from out of his personal savings and in respect of the deposits of Rs..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 Rs..7.00 lakhs made into bank account and treated the balance cash deposits of Rs..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 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 Rs..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 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 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 CIT 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 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 CIT 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.”

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 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.

 

 

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