Brief of the case:
- The Hon’ble Kerala High Court in the case of M/s Kerala Sponge Iron Ltd. vs. CIT held that once the income has been assessed u/s 68 as unexplained cash credit it cannot be treated as business income because it is not an income classifiable under any heads of income as per Sec 14.
- Therefore, such incomes are not eligible to set off brought forward business losses and unabsorbed depreciation.
Facts of the case:
- A sum of Rs. 5,13,55,093/- was found credited in the books of accounts of the assessee as commodity trading profit claimed to be received from M/S Vatika Merchants Private Limited.
- The said income was set off by the assessee against business losses for the year in question. On enquiring with National Multi Commodity Exchange of India AO came to know that Vatika Merchants Private Limited was expelled by the exchange on the ground of issuing fraudulent contract to its clients. It was also confirmed that the assessee is a not an existing client of any member of the exchange.
- Based on this AO concluded that the transactions showing generation of commodity trading profit of 5,13,55,093/- was a bogus one. Accordingly, he treated the same as unexplained cash credit u/s 68 and added the same to the total income.
- However, assessee claimed the income assessed u/s 68 should be allowed to set off the brought forward business loss/brought forward depreciation.
- CIT(A) upheld the order of AO in totality , but on further appeal to Tribunal , it held in favour of assessee so far as set off losses & unabsorbed depreciation against the unexplained cash credit income. Tribunal allowed the claim on the ground that unexplained cash credit is nature of business income because the unexplained source viz. commodity trading income pertain to business head.
- Revenue appealed the order of tribunal so far as it allowed the claim of set off before Kerala High Court.
Contention of Assessee:
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