IN THE ITAT CHANDIGARH BENCH ‘A’
Income-tax Officer, Ward V(1) Ludhiana
V/s.
Dulari Digital Photo Services (P.) Ltd
C.O. No. 37 (Chd.) of 2010
IT Appeal No. 984 (Chd.) of 2010
[Assessement year 2006-07]
March 9, 2012
ORDER
D.K Srivastava, Accountant Member
Both the parties are aggrieved by the order passed by the CIT(A) on 23.4.2010. The issues raised by the Department in its appeal are inter-related with the issue raised by the assessee in its memorandum of cross-objections. It is therefore convenient to dispose of both of them by a consolidated order.
2. We shall first take up the appeal filed by the Department in which the following grounds of appeal have been taken:
1. That the Ld. CIT(A)-II has erred in law and on facts in holding that the Assessing Officer was not justified in treating the commodity profit of Rs. 11,94,315/- as ingenuine and sham and assessing the same under section 68 of the Income Tax Act, 1961.
2. That the Ld. CIT(A) has erred in law and on facts in holding that the income assessed under section 68 of the Income Tax Act, 1961 falls under the heads of income as mentioned in section 14 of the Income Tax Act, 1961.
3. That the Ld. CIT(A) has erred in law and on facts in holding that the income assessed under section 68 can be set off of against any other income as per provisions of section 71 of the Income Tax Act.
4. That the order of the CIT(A)-II be set aside and that of the Assessing Officer be restored.
5. That the appellant craves leave to add to amend any ground of appeal before it is finally disposed off.
3. The assessee is engaged in the business of photography. It filed return of income on 30.11.2006 returning its total income at nil. After processing, the return was selected for scrutiny as a result of which a sum of Rs.11,94,315/- being the commodity profit found credited in the books of account of the assessee was treated as bogus and sham and consequently assessed as unexplained cash credit u/s 68 of the I-T Act. The plea of the assessee that the aforesaid income taxed by the Assessing Officer u/s 68 should be set off against the loss from other heads of income was also rejected by the Assessing Officer.
4. Facts giving rise to the impugned addition are that a sum of Rs. 11,94,315/- was found credited in the books of account of the assessee for the year under appeal as commodity profit allegedly received from M/s Shivam Commodities Services (proprietor: Shri Suresh Kumar Gupta) out of which a sum of Rs.74,550/- was claimed as loss and resultantly net income amounting to Rs.11,19,765/- was shown by the assessee as commodity income. The said commodity income was adjusted/set-off by the assessee against losses under other heads/sources of income. The AO took up the case for scrutiny. He called upon the assessee to establish the genuineness of the commodity profit shown in the accounts. In reply, the assessee filed a copy of account of M/s Shivam Commodities Services as appearing in its books for the year under appeal together with photocopies of 16 bills. The AO examined the details/bills furnished by the assessee in support of its claim. He noticed several abnormal features in the transactions and accordingly issued a detailed notice dated 17.12.2008 which has been reproduced at pages 3-6 of the assessment order. After considering the materials available on record including the reply furnished by the assessee, the AO held that the impugned transactions showing generation of commodity profit of Rs.11,94,315/- were sham and bogus. He has given several reasons for coming to the aforesaid conclusion in the assessment order, which inter-alia, are (i) no investment was made by the assessee to earn commodity profit of Rs.3,43,876/- while meager investment of Rs.50,000/- was made by the assessee to earn remaining commodity profit; (ii) the said firm, i.e., M/s Shivam Commodities Services, neither paid service tax though it was, according to the AO, payable @10.20% nor was it registered with the Service Tax authorities; (iii) the direction given to the assessee to produce the said party was also not complied with; (iv) the summons issued by the AO to the said party was also not complied with; (v) the said firm, namely, M/s Shivam Commodities Services, was not registered with Multi Commodity Exchange of India (MCX); and (vi) the bills issued by M/s Shivam Commodities Services did not contain relevant particulars like MCX Code Number, name/address of ITCM, contract number, code of the client, trade time, and brokerage, etc. He therefore treated the commodity profit shown by the assessee as unexplained cash credit and accordingly taxed the same u/s 68.
5. It was also claimed by the assessee before the AO that the impugned sum taxed u/s 68 should be treated as income from other sources u/s 56 and the same should be set-off against the losses under other heads of income in terms of section 71. The AO examined the aforesaid claim. He, however, rejected the same for the reasons given in the assessment order.
6. Aggrieved by the order passed by the Assessing Officer, the assessee filed appeal before the CIT(A) upon which the claim of the assessee was allowed.
7. Aggrieved by the order passed by the CIT(A), the Department is now in appeal before this Tribunal. In support of appeal, the ld. DR invited our attention to the findings recorded by the AO in the assessment order. He submitted that the aforesaid findings clearly established that the impugned transactions with the said party were sham and therefore have no element of genuineness. According to him, the burden was on the assessee to prove the genuineness of the transactions which the assessee has failed to discharge. As regards the claim of the assessee that the impugned sum taxed by the AO u/s 68 should be considered as income from other sources u/s 56 and thereafter set off against the losses, the ld. DR submitted that such a benefit could not be extended for the detailed reasons given by the AO in the assessment order.
8. In reply, the ld. counsel for the assessee supported the order of the CIT(A) in this behalf. Without prejudice to the aforesaid, he submitted that even if the impugned sum is treated and taxed as unexplained cash credit u/s 68 it has still to be assessed as income from other sources u/s 56 and then set-off against the losses under other heads in terms of section 71. According to him, any item assessed by the AO as income including the impugned sum assessed by the AO u/s 68 must necessarily fall under one of the heads specified in section 14. He submitted that the income from other sources u/s 56 was a residuary head of income and therefore any income including the impugned sum assessed by the AO as unexplained cash credit u/s 68 which does not fall under any of the specific heads, namely, “salary”, “income from house property”, “income from business or profession” or “capital gain” would necessarily fall under the residuary head, i.e., income from other sources u/s 56. According to him, no item can be assessed as income unless it falls under any of the heads specified in section 14. He claimed that the impugned sum being unexplained cash credit taxed by the AO was therefore liable to be assessed as income from other sources u/s 56 and then set-off against the losses under other heads of income in terms of section 71. In support of his submissions, he relied upon the judgments in Lakhmichand Baijnath v. CIT [1959] 35 ITR 426 (SC) and Kevalchand Nemchand Mehta v. CIT [1968] 67 ITR 804 (Bom.).
9. We have heard both the parties and carefully considered their submissions. There is no dispute that a sum of Rs.11,94,315/- was credited by the assessee in its books of account for the year under appeal as commodity profit. Since the impugned sum was found credited in the books of the assessee, the burden was on the assessee to satisfactorily explain the income and source thereof. The case of the assessee before the AO was that it represented commodity profit on account of dealings with M/s Shivam Commodities Services. The AO has given detailed reasons to establish the bogus and sham nature of the transactions of the assessee with M/s Shivam Commodities Services. There is no material on record to rebut the specific finding recorded by the AO in this behalf. In this view of the matter, the finding of the AO that the dealings of the assessee with M/s Shivam Commodities Services were bogus and sham is confirmed. There is no other explanation given by the assessee to explain the nature and source of the impugned cash credits. The action of the AO in treating the impugned sum as unexplained cash credit u/s 68 of the Act, therefore, deserves to be confirmed and is accordingly confirmed.
10. We shall now deal with the issue as to whether unexplained cash credits, which are deemed to be the income of the assessee u/s 68, can be considered for set-off against losses under various heads of income as enumerated in section 14. The answer to the aforesaid question lies in the fact as to whether unexplained cash credits taxed u/s 68 are assessable under a known source or head of income as enumerated u/s 14. If they are so assessable under a head of income specified in section 14, they would then and then only need to be set off against the loss from other heads of income in terms of section 71. Chapter IV of the Income-tax Act deals with “COMPUTATION OF TOTAL INCOME” under various heads of income. Section 14, which enumerates head of income, falls under Chapter IV and reads as under:
CHAPTER IV
Computation of Total Income
Heads of income
