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TMI Blog2013 (1) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows:- 1. The learned CIT(A) has erred in treating the unexplained cash credits as business income and allowing deduction under section.80-IB of the Income tax Act, 1961 after considering the remand report of the Assessing Officer. 2. The assessee has not anywhere stated that the unexplained cash credits were out of his business income. 3. The cash credits assessable under section.68 of the Income tax Act falls under Chapter VI of the Income tax Act, 1961 as per which this does not appear under any of the heads of income. 4. The learned CIT(A) has failed to notice that the deduction under section.80 IB of the Income tax is allowable and eligible against income earned from the business under Chapter IV D of the Income tax Act, 1961. In the course of hearing, the D.R representing Revenue has reiterated the above said pleadings and vehemently argued that the CIT(A) has wrongly held that unexplained cash credits in question deserve to be treated as assessee s business income. In support of the arguments, he has placed reliance on the case law of CIT Vs.Abdul Rahman Industries ( [2007] 293 ITR 475 (Mad.) ) Fakir Mohmed Haji Hasan Vs. CIT ( [2001] 247 ITR 290( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., i) that the Assessing Officer had wrongly made addition regarding sundry credits in question (ii) that the addition was wrongly made under the head other sources . We notice that in appeal, the CIT(A) sought a remand report; wherein the Assessing Officer had confirmed an amount of ₹ 4,55,355/-. In the light thereof, the CIT(A) has restricted the addition of ₹ 16,42,093/- to ₹ 11,86,758/- (`16,42,093 4,55,355). Further, the CIT(A) has also held that since the assessee is entitled for deduction under section 80-IB of the Act, the addition in question under section 68 of the Act is liable to be treated as business income . 5.1. In this backdrop of the facts, the Revenue is aggrieved by the second portion of the CIT(A) s order wherein the addition/s 68 of the Act has been ordered to be treated as business income . It is also revealed that there is no pleading to challenge the relief of ₹ 4,55,355/- granted to the assessee. 6. We have heard both parties at length, perused the relevant findings of the Assessing Officer as well as the CIT(A) and the case laws cited by both parties have also been gone through. It emerges that in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the cash credits were result of assessee s main business activity. After perusing the said case law, we notice that therein the concerned assessee had duly filed confirmations from the creditors in question. It was in the said circumstances that the Hon ble Calcutta High Court had rightly upheld the claim of assessee. Again we reiterate that the facts of the instant case as cited above are different from those involved in the above said case. Therefore, both the above judgements do not help the assessee s case. 7. This leave us with the case law of Fakir Mohmed Haji Hasan Vs. CIT ( [2001] 247 ITR 290 (Guj.) ) cited by the Revenue wherein the addition was under the Chapter VI of the Act (under section 69A). The scheme of the Act makes it clear that Sections 68, 69, 69A to 69D deal with cash credits, unexplained investments, unexplained money, amount of investments not fully disclosed in the books of account, unexplained expenditure and amount borrowed or repaid at hundi. A perusal of the above provisions make it clear that same language, although in different spheres of additions, has been used by the legislature. In this backdrop, we proceed to deal with the case law of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified under any one of the heads of income under section 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 sections 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. 6.2. The opening words of section 14 Save as otherwise provided by this Act clearly leave scope for deemed income of the nature covered under the scheme of sections 69,69A 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 sections 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be considered for set-off against losses under heads of income as enumerated in section14. 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 other heads of income in terms of section 71. Chapter IV of the Income tax Act deals with COMPUTATIN OF TOTAL INCOME under various heads of income. Section 14, which enumerates head of income, falls under Chapter IV and reds as under: Heads of income. 14. 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 following heads of income :- A.-Salaries. B.-[omitted by the Finance Act 1989] C.-Income from house property. D.-Profits and gains of business or profession. E.-Capital gains. F.-Income from other sources. 11. Some of the salient features of section 14 insofar as they have maerial bearing on the issue under appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore 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 VI of the IT Act. (ii) 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. (iii) Amounts are taxed under the provisions of Chapter VI for the reason that their nature and sources 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 enumera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income assessable under them are part of total income as defined in sections 2(45)/4/5 of the I.T. Act yet that does not mean that income assessable under section 68 has to be assessed under section 56. In the case before us, source of unexplained cash credits is not known and hence they cannot 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. The aforesaid view is fortified by the judgement of the Hon ble Gujarat High Court in Fakir Mohmed Haji Hasan V. CIT [2001] 247 ITR 290 in which the Hon ble High Court has held as under:- The scheme of sections 69,69A, 69B and 69C of the Income-tax Act 1961, would show that in cases where the nature and source of investments made by the assessee or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sections 69,69A,69A and 69C of the Act in view of the scheme of those provisions. 16. In view of th foreging, we are unable to hold that unexplained cash credits assessed under section 68 are to be assessed as income from other sources under section 56. 17. The ld. Counsel for the assessee, however, relied uponthe judgements in Lakhmichand Bajnath s case (supra) and Kevalchand Nemchand Mehts s case (supra). We have carefully gone though them. They have been rendered in the context of old India Income-tax Act of 1922 in which there was no provision corresponding to section 68 or Chapter VI of the Income-tax Act 1961. In the absence of any specific provision in the old Indian Income-tax Act of 1922, a view was taken that unexplained cash credits would be assessable as income from other sources. Section 68 under Chapter VI has been inserted in the present Income-tax Act to provide that any sum found recorded in the books of the assessee would b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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