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Income Tax Appellate Tribunal, JAIPUR BENCH ’SMC’, JAIPUR
Before: SHRI SHRI VIJAY PAL RAO
This appeal by the assessee is directed against the order dated 14.03.2018 of ld. CIT (Appeals)-2, Jaipur for the assessment year 2008-09. The assessee has raised the following grounds of appeal :-
“ 1. In the facts and circumstances of the case the learned CIT (A) has erred in confirming the action of the learned Assessing Officer without appreciating the provisions of the Income Tax Act, 1961 in treating the income disclosed by the assessee under the head Income from other sources of Rs. 13,94,189/- as undisclosed/unexplained income u/s 68 of the Income Tax Act, 1961.
2. In the facts and circumstances of the case the learned CIT (A) has erred in confirming the action of the learned Assessing Officer without appreciating the provisions of the income Tax Act, 1961 by not giving the set off of business of Rs. 16,10,616/- against the income
declared by the assessee of Rs. 13,93,500/- on account of cash deposited in the bank as “income from other sources.”
3. In the facts and circumstances of the case the learned CIT(A) has erred in sustaining the addition of Rs. 2,13,300/- on account of cash deposited in the bank treated as unexplained.
4. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.”
The assessee is an Individual and engaged in the business of trading in shares.
The assessee did not file return of income under section 139(1) of the IT Act. The AO initiated the proceedings under section 147/148 of the IT Act on the basis of AIR information regarding cash deposit of Rs. 17,06,800/- in his Savings Bank Account during the year under consideration. Accordingly the AO issued notice under section 148 of the Act on 25th March, 2015. The assessee filed the return of income on 15.06.2015 declaring loss from business of trading in shares and derivatives of Rs. 16,10,616/- and income from other sources at Rs. 13,95,462/-. The assessee claimed that the income of Rs. 13,94,179/- was declared and surrendered on account of cash deposit in the bank account as income from other sources and set off the losses from business against the income from other sources. The said claim of the assessee of setting off the business loss against the income from other sources which includes surrender of income of Rs. 13,94,179/- on account of cash deposit was not accepted by the AO on the ground that it is nothing but to avoid tax liability by such artificially created income as well as opening balance of cash. The AO has treated the whole amount of cash deposit in the bank account to the tune of Rs. 17,06,800/- as unexplained income as per the provisions of section 68 of the Act. The AO finally concluded that the business loss declared by the assessee cannot be set off against the unexplained cash credit under section 68 of the Act. The assessee challenged the action of the AO before the ld. CIT (A) but could not succeed.
Before the Tribunal, the ld. A/R of the assessee has submitted that the AO as well as the ld. CIT (A) has erred in treating the surrendered income as unexplained deposit under section 68 to deny the setting off of business loss against the said income. The authorities below have failed to appreciate the provisions of section 56 of the Act and also the provisions of section 115BBE(2) of the Act. Once the assessee has surrendered the income as income from other sources, then the same cannot be treated as unexplained cash credit under section 68 of the Act. He has relied upon the decision of Hon’ble Supreme Court in case of Baladi Ram vs. CIT, 71 ITR 427 (SC) and submitted that for attracting the provisions of section 68 the assessee must maintain books of account for the relevant previous year and cash credit entries appear in such books of account. When the assessee did not maintain any books of account and no entry was made regarding the introduction of cash, then the provisions of section 68 cannot be invoked. He has also relied upon various other decisions on this point that when the assessee is not maintaining books of account, no addition can be made under section 68 of the Act. The reliance placed by the assessee on the decisions are as under :-
Mehul V. Vyas vs. Income Tax Officer 164 ITR 296
Income Tax Officer vs. Kamal Kumar Mishra 143 ITD 686 (Lucknow)
Thus the ld. A/R has submitted that the income surrendered by the assessee is income from other sources and, therefore, the business losses declared by the assessee are eligible for set off against the said income.
3.1. As regards not allowing the opening cash balance as source of deposit in the bank, the ld. A/R has submitted that the assessee filed an affidavit and submitted that since 1995 the assessee is doing brokerage in cloth business and earned some income which was below taxable limit and accordingly the assessee did not file any return of income upto the assessment year 2011-12. Therefore, the opening balance of Rs. 3,13,300/- is from the past savings of the assessee.
On the other hand, the ld. D/R has relied upon the orders of the authorities below.
I have considered the rival submissions as well as the relevant material on record. It is a case of non-filing of return of income under section 139(1) of the IT Act and only when the AO issued notice under section 148 of the Act to assess the income on account of deposit of cash of Rs. 17,06,800/-, the assessee filed the return of income declaring loss of Rs. 16,10,616/- from the business of trading in shares of derivatives. It is pertinent to note that the assessee is not maintaining any books of account and also not having any record in support of the said loss declared in the return of income, except the computation of income filed by the assessee. Further, the reassessment proceedings are not for the benefit of the assessee to make a new claim which is not made in the original return of income under section 139(1) of the Act. The Hon’ble Supreme Court in case of CIT vs. Sun Engineering Works Pvt. Ltd., 198 ITR 297 (SC) has held that the proceedings under section 147 are for the benefit of the revenue and not for the assessee. The Hon’ble Supreme Court has specifically held that the matter not agitated in the original assessment cannot be permitted to be agitated in the reassessment proceedings unless relatable to the items sought to be taxed as escaped assessment. The relevant finding of the Hon’ble Supreme Court are in para 39 to 43 as under :-
“39. As a result of the aforesaid discussion we find that in proceedings under section 147 the ITO may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the ITO's jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the under-assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The ITO cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under section 152(2). The words 'such income' in section 147 clearly refer to the income which is chargeable to tax but has 'escaped assessment' and the ITO's jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment proceeding cannot be permitted to be reagitated on the assessment being reopened for bringing to tax certain income which had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under section 147 which are for the benefit of the revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income', and reagitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings related to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed.
It would be seen that whereas in the case of Anglo French Textile Co. Ltd. (supra) the question as to the rights of an assessee to claim 'redoing', 'revising' or 'recomputing' entire income during the reassessment proceedings was left open, that question did not come up for consideration in the case of H.R. Shri Ramulu ( supra) or H.M. Esufali H.M. Abdulahi (supra) or even in V. Jaganmohan Rao's case (supra). Some of the High Courts, therefore, fell in error in reading those judgments, divorced from the context in which the precise questions came up for consideration in those cases, and to hold that the assessee could 'reagitate' the concluded issues and claim relief in respect of items, finally concluded in the original assessment proceedings, during the reassessment proceedings, unconnected with the escapement of income. We cannot, therefore, approve in broad propositions laid in that regard in Indian Refrigeration Industries (P.) Ltd.'s case (supra), Ramsevak Paul's case (supra ), Assam Oil Co. Ltd.'s case (supra), Standard Motor Products of India Ltd.'s case (supra), Rangnath Bangur's case (supra), State Bank of Hyderabad's case (supra) and Indian Rare Earth Ltd.'s case (supra).
Keeping in view the above principles, we may now turn our attention to the question formulated by the High Court as noticed in the earlier part of the judgment.
The Tribunal rightly found that the loss which the assessee wanted to be set off against the 'escaped income' could not be allowed to be so set off because in the original assessment proceedings, no 'set off' was claimed or permitted and the original assessment had acquired finality when the appeal against the order of assessment failed before the AAC and the assessee took no further steps to agitate the issue. The Tribunal was also right in concluding that the items which the assessee wanted to be taken into account in the proceedings under section 147 were unconnected with the escapement of income. The High Court clearly fell in error in holding otherwise. Since the original assessment had been concluded finally against the assessee, it was not permissible for the assessee in the reassessment proceedings to seek a review/revision of the concluded assessment for the purpose of computation of the escaped income. The High Court clearly fell in error by permitting the assessee to reagitate, in the reassessment proceedings under section 147(a), the finally concluded assessment proceedings and to grant to him relief in respect of items not only earlier rejected, but also unconnected with the escapement of income by assuming as if the original assessment had not been concluded or was 'still open'.
Therefore, our answer to the question formulated by the High Court and noticed in the earlier part of this judgment is that in the reassessment
proceedings it is not open to an assessee to seek a review of the concluded item, unconnected with the escapement of income, for the purpose of computation of the escaped income.”
In view of the undisputed fact that the claim of business loss and setting off of the same was not made by the assessee prior to the initiation of reassessment proceedings by the AO and, therefore, the assessee cannot be permitted to claim the alleged loss from business to set off against the surrendered income on account of deposits made in the bank account. This setting off of loss is not in respect of the income sought to be assessed by the AO while initiating the proceedings under section 147/148 of the Act and hence an un-relatable claim is not permitted against the income sought to be assessed in the reassessment proceedings. As regards the claim of opening balance of Rs. 3,13,300/-, except the affidavit filed by the assessee no supporting material was produced, even otherwise assessee was not maintaining any books of account and never filed any return of income during the period the saving is claimed, thus the claim of the assessee cannot be accepted. The ld. CIT (A) has considered this issue in para 2.3 as under :-
“2.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The facts relating to the issue are that the Assessing Officer had information as per AIR, that the assessee had deposited an amount of Rs.17,06,800/- in cash in his Saving Bank Account for the year under consideration. It was further found by the Assessing Officer that no return of income had been filed by the assessee. In response to notice under section 147 and 142(1) alongwith the questionnaire, a return of income was filed by the assessee on 15.06.2015 declaring loss from business of dealing in shares and derivatives at Rs. 16,10,616/- and income from other sources at Rs. 13,95,462/- and the loss was set off against the income from other sources. The source of cash deposited was explained from opening balance of Rs.3,13,300/- and Rs. 13,93,500/- was surrendered and shown as income from other sources. The Assessing Officer after noting that no return of income had been filed for earlier years, as well as in the absence of any evidence, and for reasons discussed in the assessment order, had not accepted the opening balance of Rs.3,13,300/-. Further, as the assessee could not explain the source of the other amount, the same was treated as unexplained income under section 68 of the I.T. Act, 1961. The Assessing Officer further, did not allow the set off of income assessed under section 68 of the IT. Act, 1961, from the business losses declared by the assessee and arrived at I income of Rs.17,06,800/-. Reliance was placed on the decision of M/s Dulari Digital Photo Services Pvt. Ltd. Ludhiana in Appeal No.189 of 2012 dated 10.09.2013 and the appeal filed before the High Court in this case by the assessee has been dismissed. In the present proceedings, similar arguments were reiterated. It was also submitted that from the language of section 68, the sums referred to found credited in assessee's books is to the books of accounts of the assessee while in the assessee's case the addition is made on entries found in the bank statement which is maintained by the bank. As regards the opening balance it was claimed that assessee had migrated from Pakistan and was scared to deposit money in the bank and further the assessee was earning from the age of 19 and saving some amounts every year and the money shown as opening balance was saved over a period of 13 years and hence should be accepted. It was further claimed that the other income surrendered of Rs. 13,94,179/- was earned by him in grey market trade in shares and derivatives though he had not maintained any record for it. Reliance was placed on CIT vs. Ashok Arora (Punjab &Haryana) for the proposition that where affidavits and confirmatory letters of vendors was filed of all vendors, the addition merely on non-production of vendors cannot be made. The facts are clearly distinguishable as in assessee's case no such evidence in the form of confirmation has been filed. Reliance is also placed on ACIT vs. Smt. Ganga Dei Sangarana96TTJ(Cutt. Trib.) 351, but here also the facts are clearly distinguishable. Reliance was placed on CIT vs. Chinmay Ventures 291 ITR 258 (Mad.) to say that set off of losses should not have been denied. However, in that case the court noted that the Assessing Officer had not given any reasons for denying the set off. It is seen that the return of income was not filed by the assessee within the time prescribed for the relevant year. It is only after the AIR information available with the Assessing Officer was disclosed by issue of notice under section 148 and 142(1) alongwith questionnaire that the assessee has filed the return. The surrender of the unexplained income is thus not voluntary, as regards the submission that section 68 of the IT. Act, 1961 cannot be applied as the entries were found in the Bank books, the proposition is not correct as held in 37 taxmann.com219(Mad),in the case of S. Muthu kumar vs. ITO. Further, section 68 is objected to on the ground that the entries were not found in the books of account. It is seen that the assessee had not maintained the books of account the then section 69 would be applicable as the amounts have been deposited in the bank any heads of income as defined in the Act and hence fall in the residual head. In the assessee's case, on enquiry regarding the source of the cash deposits in the bank, the assessee has surrendered these amounts for taxation. No details whatsoever of the source of this income has been provided. In appeal proceedings, the plea of amounts earned in share trading in grey markets is taken but no evidence whatsoever has been provided for the same. Any claim made has to be backed by some corroborative evidence to afford credibility to the same. In the present case, no such explanation has been attempted. In view of the same the Assessing Officer has rightly assessed the same as 'unexplained income' under section 68 of the IT. Act, 1961 and in that case set off cannot be given. This proposition is supported by the case law of ITO, Ward-V(1), Ludhiana vs. Dulari Digital Photo Services (P) Ltd. (2012) 24 Taxmann.com 31 (Chd.) relied on by the Assessing Officer. Further, in the case of the same has been upheld. “The Assessing Officer has given detailed reasons to establish the bogus and sham nature of the transactions of the assessee with 'S'. There is no material on record to rebut the specific finding recorded by the Assessing Officer in this behalf. In this view of the matter, the finding of the Assessing Officer that the dealings of the assessee with 'S' were bogus and sham is to be confirmed. [Para 9]
Whether unexplained cash credits, can be considered for set-off against losses under various heads of income given under section 14. The answer to the aforesaid question lies in the fact as to whether unexplained cash credits taxed under section 68 are assessable under a known source or head of income as enumerated under section 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 heads of income in terms of section 71 [Para 10] Section 14 merely classifies the income under various heads of income for the purpose of computation of total income under them. Section 14 does not deal with aggregation of income; it merely deals with classification of income under various heads of income. 'Computation of total income under various heads of income under Chapter IV is altogether different from 'aggregation of income' under Chapter VI. They do not mean one and the same thing. They are fundamentally different from each other. Section 14 is not a charging section; it merely classifies income under various heads of income. It is total income of the previous year and not the head of income which is chargeable to income- tax under section 4. Opening words of section 14 are ' save as otherwise provided by this Act', all income shall, for the purposes of charge of income- tax and computation of total income, be classified under the heads of income specified therein. Thus, section 14 is subject to the other provisions of the Act. Taxability of income under the specific provisions of the Act outside Chapter IV is not affected by heads of income as classified in section 14. As a corollary, it follows that income liable to be taxed under the specific provisions of the Act outside Chapter IV can be taxed without bringing the same under a head of income as specified under section 14. [Para 11] Any sum, which is deemed to be the income of the assessee in terms of sections 68, 69, 69A, 69B and 69C, falls within the 'scope of total income' as defined in section 2(45)/5 and is, therefore, chargeable to tax under section 4. In terms of Chapter VI, it is aggregated with the income computed under Chapter IV.
Aggregation of income under Chapter VI is not the same thing as computation of income under various heads of income in terms of Chapter. Computation of income under each head of income in terms of Chapter IV requires determination of excess of gross receipts over expenses legally permissible in that behalf under the relevant head of income. Aggregation of income under Chapter VI does not provide for any deduction towards any expenditure. It brings the entire sum to the charge of income-tax and, thus, there is no element of 'computation' of income under Chapter VI as in the case of income falling under specific heads in terms of Chapter IV. It could be for this reason that the sums taxed under Chapter VI have been kept outside the computational provisions of Chapter IV. Amounts are taxed under the provisions of Chapter VI for the reason that their nature and source are not known. Once their nature and source are known, they have to be pegged to that source/head of income and taxed under the respective heads of income as enumerated in Chapter IV and not under the provisions of Chapter VI. Conversely, if the nature and source of such amounts are not known, they have to be taxed under the specific provisions of Chapter VI. It, therefore, necessarily follows that what is taxed under the specific provisions of Chapter VI cannot be pegged to any of the sources/heads of income as specified in Chapter IV. [Para 13] The aforesaid view is supported by the scheme of taxation under the Act. Section 2(45) defines "total income" as 'the total income referred to in section 5, computed in the manner laid down in the Act'. It is relevant to note that the principal charging section 4 makes the 'total income of the previous year' subject to the charge of income-tax. Section 5 defines the scope of total income referred to in the principal charging section. Section 14 classifies the heads of income while sections 15 to 59 provide for its quantification. Chapter VI of the Act provides for aggregation of income and set off or carry forward of loss. Thus, Chapter VI is in two parts; first part deals with aggregation of income while the second part deals with set off or carry forward of losses. Chapter VI has been placed after Chapter IV and V. It comes into play only after the computation of total income under various heads of income in terms of Chapter IV has been done. Income falling under Chapter VI is taxed by aggregating the same with the income quantified in terms of Chapters IV. Chapter VI is not subservient to Chapter IV. Besides, section 14 allows the taxability of income under specific provisions of the Act outside Chapter IV. For the reasons aforestated, the income assessable under section 68 cannot be assessed as income from other sources under section 56. [Para 14] Thus what is taxed under Chapter IV is income from a known source including income from other sources. A source of income means a specific source from which a particular income springs or arises. Once a source giving rise to a particular income is identified, it has then to be placed under a particular head of income as specified in section 14. Thus income can be taxed under a specific head of income as enumerated in section 14 only when it is possible to peg the same to a known source/head of income. If the nature and source of a particular receipt is not known, it cannot then be pegged to a known source/head of income. Chapter IV contemplates computation of income arising from known sources/heads of income whereas Chapter VI, on the other hand, contemplates aggregation of the entire sum the nature and sources of which are not known. The aforesaid two Chapters are completely different in their nature, scope and effect. Though the incomes assessable under them are part of total income as defined in sections 2(45)/4/5 yet that does not mean that the income assessable under section 68 has to be assessed under section 56. In the instant case, source of unexplained cash credits was not known therefore same be linked to any known source/head of income including income from other sources. In order to constitute income from 'other sources', the source, namely, the 'other sources', has to be identified. Income from unexplained or unknown sources cannot therefore be considered or taxed as income from other sources. [Para 15] The assessee claims set off of loss from business assessed by the Assessing Officer under section 28 against the income being unexplained cash credits assessed by the Assessing Officer under section 68 on the ground that income assessed by the Assessing Officer under section 68 is income from other sources under section 56. Section 71 permits set off of loss from one head against income from another head of income as enumerated in section 14. It is already held earlier that income assessable under section 68 cannot be assessed under any particular head of income including income from other sources under section 56. In this view of the matter, the business loss assessed by the Assessing Officer cannot be set off against the amount taxed under section 68 as unexplained cash credits taxed under section 68 cannot be pegged to any head of income. [Para 18]”
The fact that these sums have been surrendered clearly shows that the deposit of the amounts in the banks are not being denied and also that assessee has no explanation for the same, In the present proceedings, the plea has been taken that these relate to share transaction in the grey market but no evidence of anything, to support the above claim has been produced. As regards the issue of opening balance, for the elaborate reasons discussed in the order of the Assessing Officer, the same has been denied. However, considering the fact that the assessee might have some accumulation of funds over the years, a benefit of Rs.1 lakhs is found reasonable and allowed. However, the theory of being scared to put money in the banks taken by the Authorized Representative is completely rejected because the assessee has a bank account and been operating it. Further the ratio of the following decision also supports the view that income assessed under section 68 cannot be set off against the loss claimed by the appellant.
Kim Pharma (P) Ltd. vs. CIT, (2013) 35 Taxmann.com 456 (Punjab & Haryana)
6. The Tribunal had relied upon a decision of the Gujarat High Court in Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11. In that case, interpreting the scope and describing the scheme of ss. 69, 69A, 69B and 69C of the Act, it was observed :
"The scheme of ss. 69, 69A, 69B and 69C of the IT Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under s. 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from 'other sources' which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under s. 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of ss. 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions etc. applicable to the relevant head of income under which such income falls will automatically be attracted. The opening words of s. 14 'save as otherwise provided by this Act' clearly leave scope for 'deemed income' of the nature covered under the scheme of ss. 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from 'other sources' because the provisions of ss. 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head 'Income from other sources'. Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of ss. 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions."
The said decision fully applies to the facts of the present case.
As regards, the question of set off only that income can be returned as other income where the source is explained and then set off can be afforded. In the present case as discussed in detail before, the amount taxed under section 68 cannot be pegged to any head of income and so the loss cannot be set off against the same. In view of the discussion as above, and decision relied on, the income of Rs.16,06,800/- is considered as unexplained income and the same cannot be set off against loss from business. The ground of appeal is dismissed.”
In view of the above facts and circumstances as well as the judgment of the Hon’ble Supreme Court in case of CIT vs. Sun Engineering Works Pvt. Ltd. (supra), I do not find any reason to interfere with the order of the ld. CIT (A).
In the result, the appeal of the assessee is dismissed. Order is pronounced in the open court on 29/10/2019.