2012 (8) TMI 616 - AT - Income Tax

Unexplained Cash credit Held that - Amounts are taxed under the provisions of Chapter VI for the reason that their nature and source are not known - 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 - unexplained cash credits have to be brought to tax under section 68 and not under section 56 Set off of loss from business against the income being unexplained cash credits u/s 68 Held that - Income assessable u/s 68 cannot be assessed under any particular head of income including income from other sources u/s 56 - business loss assessed by the AO cannot be set off against the amount taxed u/s 68 as unexplained cash credits taxed under section 68 cannot be pegged to any head of income - appeal filed by the department is allowed.

Issues Involved:
1. Treatment of Commodity Profit as Unexplained Cash Credit under Section 68 of the Income Tax Act, 1961.
2. Classification of Income Assessed under Section 68 under the Heads of Income as per Section 14.
3. Set-off of Income Assessed under Section 68 against Other Income as per Section 71.
4. Disallowance of Loss from Derivative Trading of Commodities.

Detailed Analysis:

1. Treatment of Commodity Profit as Unexplained Cash Credit under Section 68 of the Income Tax Act, 1961:
The Department challenged the CIT(A)'s decision to reject the Assessing Officer's (AO) treatment of Rs. 11,94,315/- as ingenuine and sham, and its assessment under Section 68. The AO had scrutinized the transactions and found several abnormalities, including lack of investment by the assessee, non-compliance with service tax regulations, and failure to produce the concerned party (M/s Shivam Commodities Services). The Tribunal upheld the AO's findings, confirming that the transactions were bogus and sham, thus validating the treatment of the commodity profit as unexplained cash credit under Section 68.

2. Classification of Income Assessed under Section 68 under the Heads of Income as per Section 14:
The Tribunal examined whether unexplained cash credits under Section 68 could be classified under the heads of income specified in Section 14. It concluded that Section 14 classifies income for computation purposes and is not a charging section. The Tribunal emphasized that income under Section 68 is aggregated with income computed under Chapter IV but is not classified under any specific head of income in Section 14. Thus, unexplained cash credits under Section 68 cannot be assessed as income from other sources under Section 56.

3. Set-off of Income Assessed under Section 68 against Other Income as per Section 71:
The assessee argued that income assessed under Section 68 should be set off against losses from other heads of income as per Section 71. The Tribunal rejected this argument, stating that unexplained cash credits under Section 68 do not fall under any specific head of income in Section 14. Since the nature and source of such income are unknown, it cannot be pegged to any head of income, including income from other sources. Consequently, the business loss assessed by the AO could not be set off against the amount taxed under Section 68.

4. Disallowance of Loss from Derivative Trading of Commodities:
The assessee claimed a deduction for a loss of Rs. 74,550/- from derivative trading of commodities against the total profits. The AO disallowed this loss, and the CIT(A) upheld this decision, noting that the assessee failed to provide necessary evidence to prove the genuineness of the loss. The Tribunal agreed with the CIT(A) and confirmed the disallowance, stating that the assessee could not substantiate the loss with credible evidence.

Conclusion:
The Tribunal allowed the Department's appeal, confirming the AO's treatment of the commodity profit as unexplained cash credit under Section 68 and rejecting the classification of such income under Section 14 or its set-off against other income under Section 71. The assessee's cross-objections regarding the disallowance of the derivative trading loss were dismissed, as the assessee failed to prove the genuineness of the claimed loss.

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