2012 (12) TMI 369 - AT - Income Tax

Set off of loss u/s 71 - Whether loss under head PGBP can be set off against income held as unexplained investment u/s 69 - Held that - Following the decision in case of D. P. Sandu Bros. Chembur P. Ltd. (2005 (1) TMI 13 - SUPREME COURT) that 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 AO is directed to allow set off of business loss against income from other sources in accordance with the provisions of Sec 71. Issue decides in favour of assessee

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) erred in not allowing the set off of loss computed under the head "Profit and gains of business" against income assessed as unexplained investment under section 69 of the Income Tax Act.

Detailed Analysis:

Background:
The assessee filed a return of income for the assessment year 2007-08, admitting an income of Rs. 1,98,210/-. The assessment was completed under section 143(3) of the Income Tax Act, determining the total income at Rs. 31,98,212/-. The Assessing Officer added Rs. 30.00 lakhs as unexplained investment under section 69, which was credited in the assessee's savings bank account. The Assessing Officer did not allow the set off of business loss against this income, citing that it does not fall under the head "income from other sources" based on the decision of the Hon'ble Gujarat High Court in Fakir Mohammed Haji Hasan v. CIT [247 ITR 290].

Assessee's Argument:
The counsel for the assessee argued that the unexplained cash deposits should be considered under the head "income from other sources" and thus, the business loss should be allowed as a set off under section 71 of the Act. The counsel contended that the decision in Fakir Mohammed Haji Hasan v. CIT was based on specific facts and should not apply to the present case. The counsel referenced the Supreme Court decision in CIT v. D. P. Sandu Bros. Chembur P. Ltd. [273 ITR 1], stating that income assessed under section 68/69 should fall under one of the heads specified in section 14 of the Act.

Revenue's Argument:
The counsel for the Revenue supported the orders of the lower authorities, maintaining that the unexplained investment under section 69 should not allow for a set off of business loss.

Tribunal's Analysis:
The Tribunal examined the facts and the legal precedents. It noted that the unexplained cash deposits of Rs. 30.00 lakhs were treated as unexplained investment under section 69 by the Assessing Officer. The Tribunal referred to the Gujarat High Court decision in Fakir Mohammed Haji Hasan v. CIT, where it was held that unexplained investments do not fall under any specific head of income.

However, the Tribunal also considered the Supreme Court decision in CIT v. D. P. Sandu Bros. Chembur P. Ltd., which emphasized that all income should be classified under one of the heads specified in section 14 of the Act. The Tribunal noted that if the source of the income is not proved, it should fall under the head "income from other sources."

Conclusion:
The Tribunal concluded that since the assessee could not prove the source of the cash deposits, the unexplained investments should be assessed under the head "income from other sources." Consequently, the Tribunal directed the Assessing Officer to allow the set off of business loss against this income in accordance with section 71 of the Income Tax Act.

Final Judgment:
The appeal of the assessee was allowed, and the Assessing Officer was directed to allow the set off of business loss against the income from other sources.

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