Dulari Digital Photo Services Private Limited v. Commissioner Of Income Tax, Ludhiana (Punjab

Income Tax Appeal No.189 of 2012 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Income Tax Appeal No.189 of 2012 Date of Decision:10[th] September, 2013 Dulari Digital Photo Services Private Limited. ..Appellant Versus Commissioner of Income Tax, Ludhiana (Punjab) ..Respondent CORAM:HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present:Mr. Pankaj Jain, Advocate, for the appellant.Ms. Savita Saxena, Advocate, for the respondent. RAJIVE BHALLA,J. The appellant challenges order dated 09.3.2012 passedby the Income Tax Appellate Tribunal, “A” Bench, Chandigarh, settingaside order dated 23.4.2010 passed by the Commissioner of IncomeTax (Appeals)-II, Ludhiana, and restoring order dated 31.12.2008passed by the Assessing Officer. Counsel for the appellant submits that as the appellantdisclosed an income of Rs.25,25,120/-, including Rs.11,19,765/-, ascommodity income, the Assessing Officer as well as the Income TaxAppellate Tribunal have erred in holding that as this amount does notrelate to income as defined under Section 14 of the Income Tax Act,1961 (hereinafter referred to as “the Act”), it has to be considered asincome under section 68 of the Act. It is further argued that Income Tax Appeal No.189 of 2012 2 Rs.11,94,315/- shown as “commodity income” falls within thedefinition of “income from other sources” as defined under section 14of the Act. The expression “income from other sources” is to beassigned a wide meaning, whereas the respondent has assigned anarrow meaning by ignoring relevant judgments, provisions of thestatute and holding that commodity income has to be assessedunder Section 68 of the Act. Counsel for the appellant submits that the followingquestions of law arise for consideration:- “ (i)Whether under the facts and circumstances of thecase, the residuary head of income namely `Income fromOther Sources' contained Chapter IV in Part F, u/s 14 ofthe Act can principally be assigned a `Narrow Meaning'while interpreting the word `Chargeable Income' u/s 5regarding `Source or Head of income'? (ii)Whether the true and correct interpretation of the`Statute' can be rendered in accordance with the Principleof Law for determining the legislative intent according toPearless General Finance & Investment Co. Ltd. Vs.Reserve Bank of India and Others (1987) 1 SCC 424? (iii)Whether on the true and correct interpretation of thedecision of Union of India and Others Vs. Brigadier P.S.Gill (2012) 4 SCC 463, in accordance with the elementaryrule of construction no provision of a statute should beconstrued in isolation but it should be construed to giveconsistent and harmonious meaning relating to the Income Tax Appeal No.189 of 2012 3 subject-matter? (iv)Whether on the true and correct interpretation of theProvisions of law, both `Charging and `Computation'steps are altogether distinct aspect of consideration inaccordance with decision of Goodyear India Ltd. & othersVs. State of Haryana and Anothers (1990) 2 SCC 71? (v)Whether under the facts and circumstances of thecase, the source is not necessarily one which is expectedto be continuously productive, but it must be one whoseobject is the production of and definite return of income? Counsel for the revenue, however, submits that theincome shown as “commodity income” was a sham transaction, notrelatable to any business activity was, therefore, rightly excluded from“income from other sources”. It is further submitted that as theIncome Tax Appellate Tribunal has considered the provisions ofSections 14 and 68 of the Act and only thereafter recorded findingsagainst the appellant. The substantial question of law framed by theappellant does not arise for consideration. The appeal may, therefore,be dismissed. (v)Whether under the facts and circumstances of thecase, the source is not necessarily one which is expectedto be continuously productive, but it must be one whoseobject is the production of and definite return of income? Counsel for the revenue, however, submits that theincome shown as “commodity income” was a sham transaction, notrelatable to any business activity was, therefore, rightly excluded from“income from other sources”. It is further submitted that as theIncome Tax Appellate Tribunal has considered the provisions ofSections 14 and 68 of the Act and only thereafter recorded findingsagainst the appellant. The substantial question of law framed by theappellant does not arise for consideration. The appeal may, therefore,be dismissed. We have heard counsel for the parties, perused orderspassed by the Income Tax Appellate Tribunal, Commissioner ofIncome Tax (Appeals) and the Assessing Officer, but beforeproceeding to record our opinion on the arguments addressed,would narrate, in brief, the facts of the present controversy. Income Tax Appeal No.189 of 2012 4 Shivam Commodities Services Limited. The Assessing Officer,provided an opportunity to the appellant to establish the bona fidesof this transaction and after forming a prima facie opinion, theappellant has not been able to prove the bona fides of thetransaction, the alleged income from commodities is without anyplausible explanation etc. and called upon the appellant to explainthe matter in detail. The appellant, in response, filed a reply andmade an attempt to explain the income, but as the Assessing Officerwas not satisfied, proceeded to hold as follows:- “ Undersigned has considered the contentions put forthby assessee and the same are rejected since assesseehas not been able to prove the authenticity/genuinenessof alleged profit/commodity income from trading ofderivatives of Commodities. Accordingly, deduction ofRs.74,550/- is not allowed and the same is held to be partof assessee's taxable income CONCLUSION From the above discussions and considering the totality offacts, I hold that W.R.T. Sum of Rs.11,94,315/- foundcredited in the Books of Assessee Company maintainedfor previous year 2005-06, explanation offered by it aboutthe nature and source thereof is not satisfactory, the sumso credited (Rs.11,94,315/-) has to be charged to incometax as the income of assessee company of previous year2005-06 relevant to A.Y. 2006-07 U/s 68 of the I.T. Act,1961.” Income Tax Appeal No.189 of 2012 5 In the present case the nature and source of income fromderivative trading of Commodities remains bogus. Mens-ria of assessee is proved beyond doubt. Assessee ishand in gloves – with broker/dealer and it has madeconscious efforts to introduce its income from undisclosedsources in the garb of bogus profit from trading ofderivative commodities. The broker notes are bogus, theentire transaction is a sham, assessee has not been ableto give a credible evidence to prove the source ofRs.11,94,315/- credited into its books. Just because theincome is credited by assessee does not make theincome genuine – the nature and source remainsunexplained. The income would necessarily required to betaken as chargeable income u/s 68 of I.T.Act, 1961 onlybecause all the prescribed sources including `income fromother sources' concludes at section 59 of the I.T.Act, 1961(last section of Chapter IV).” Aggrieved by this order, the appellant filed an appealwhich was allowed by the Commissioner of Income Tax (Appeals) byholding that the appellant has been able to prove the nature of thetransaction and as he had declared this income at the time of filinghis return, his income has to be assessed as “income from othersources”, under Section 14 and not under section 68 of the Act. TheVarinder Kumar2013.09.19 18:10I attest to the accuracy andintegrity of this documentHigh Court Chandigarh Income Tax Appeal No.189 of 2012 6 revenue, thereafter, filed an appeal before the Income Tax AppellateTribunal, which was allowed by reversing the order passed by theCommissioner of Income Tax (Appeals) and restoring the orderpassed by the Assessing Officer. A relevant extract from the orderpassed by the Income Tax Appellate Tribunal, reads as follows:- “ In view of the foregoing, the appeal filed by thedepartment is allowed. In its memorandum of cross-objections, theassessee has taken the following grounds:- “That the ld. CIT(A) has erred in not allowingdeduction of loss of Rs.74,550/- form derivating trading ofcommodities against profit earned from the same source. As already stated earlier, the assessee has claimeddeduction for a sum of Rs.74,550/- representing loss formderivating trading in commodities against the total profitsamounting to Rs.11,94,315/-. The loss claimed by theassessee from derivating trading was disallowed by theAO, which, on appeal, has been confirmed by the CIT(A)with the following observations:- “7.41 While dealing with above mentioned groundsof appeal it has been held that the transactions of theappellant with the broker in respect of earning the incomefrom trading in derivatives of commodity were genuine.For deciding as above most important fact which wasconsidered was that the transactions resulted in incomewhich has been accordingly disclosed in the return of Income Tax Appeal No.189 of 2012 7 income by the appellant. However, the transactionsinvolved in this regard are those transactions where theappellant claimed loss of Rs.74,550/-. Therefore, for thisthe appellant was required to prove with necessaryevidence that such loss was genuine loss. It is entirelydifferent from the income which is otherwise disclosed inthe return of income of the appellant. The very fact thatthe appellant could not get these transactions verified byproducing the broker and producing his books of accountsbefore the A.OY' would fully justify the A.O. in disallowingsuch loss. Therefore, though the Ld. Counsels havecontended as above, the claim of loss of Rs.74,550/-cannot be taken to have been proved with necessaryevidence. Disallowance of loss of Rs.74,550/- by the A.O.is, therefore, upheld.” We have heard both the parties. We are in agreementwith the reasons given by the ld. CIT(A) for confirming hisaction of the AO in disallowing the impugned loss. In thisview of the matter, the order passed by the CIT(A) in thisbehalf is confirmed.” The Income Tax Appellate Tribunal has held that asthe Assessing Officer has given detailed reasons while holding thattransactions by the assessee with M/s Shivam CommoditiesServices Limited are bogus and there is no material on record torebut findings, recorded in the order passed by the Assessing Officer, Income Tax Appeal No.189 of 2012 8 Assessing Officer. As regards the appellant's plea that the disputedincome would fall under the head “income from other sources” andnot under Section 68 of the Act, the Tribunal held as follows:- The Income Tax Appellate Tribunal has held that asthe Assessing Officer has given detailed reasons while holding thattransactions by the assessee with M/s Shivam CommoditiesServices Limited are bogus and there is no material on record torebut findings, recorded in the order passed by the Assessing Officer, Income Tax Appeal No.189 of 2012 8 Assessing Officer. As regards the appellant's plea that the disputedincome would fall under the head “income from other sources” andnot under Section 68 of the Act, the Tribunal held as follows:- “ Thus what is taxed under Chapter IV is income from aknown source including income from other sources. Asource of income means a specific source from which aparticular income springs or arises. Once a source givingrise to a particular income is identified, it has then to beplaced under a particular head of income as specified insection 14. Thus income can be taxed under a specifichead of income as enumerated in section 14 only when itis possible to peg the same to a known source/head ofincome. If the nature and source of a particular receipt isnot known, it cannot then be pegged to a knownsource/head of income. Chapter IV contemplatescomputation of income arising from known sources/headsof income whereas Chapter VI, on the other hand,contemplates aggregation of the entire sum the natureand sources of which are not known. The aforesaid twoChapters are completely different in their nature, scopeand effect. Though the incomes assessable under themare part of total income as defined in sections 2(45)/4/5 ofthe I-T Act yet that does not mean that the incomeassessable under section 68 has to be assessed u/s 56.In the case before us, source of unexplained cash creditsis not known and hence they cannot be linked to any Income Tax Appeal No.189 of 2012 9 known source/head of income including income from othersources. In order to constitute income from “othersources”, the source, namely, the “other sources” has tobe identified. Income from unexplained or unknownsources cannot therefore be considered or taxed asincome from other sources.......” The learned Income Tax Appellate Tribunal, thereafter,reproduced a judgment of the Gujarat High Court in FaqirMohammad Hasi Hassanv CIT 247 ITR 290 and proceeded torestore the order passed by the Assessing Officer. The five questions of law framed by counsel for theappellant may, in essence, be summarised as a single question oflaw, namely, whether commodities income declared by the appellantin his return can be considered as income from other sources underSection 14 or income under Section 68 of the Act. A due consideration of findings recorded by theAssessing Officer as well as the Income Tax Appellate Tribunal, leaveno ambiguity that Rs.11,19,765/- claimed by the appellant ascommodities income is not relatable to the business of the appellantand as held by the Assessing Officer, duly affirmed by the IncomeTax Appellate Tribunal and is a sham transaction, recorded with thesole object of evading tax by claiming this amount as income fromother sources. The appellant was unable to satisfactorily explain hisdealings with M/s Shivam Commodities Services Limited as bills andother documents produced, did not inspire confidence and were rejected. A due consideration of findings recorded by theAssessing Officer as well as the Income Tax Appellate Tribunal, leaveno ambiguity that Rs.11,19,765/- claimed by the appellant ascommodities income is not relatable to the business of the appellantand as held by the Assessing Officer, duly affirmed by the IncomeTax Appellate Tribunal and is a sham transaction, recorded with thesole object of evading tax by claiming this amount as income fromother sources. The appellant was unable to satisfactorily explain hisdealings with M/s Shivam Commodities Services Limited as bills andother documents produced, did not inspire confidence and were rejected. A perusal of findings recorded by the Assessing Officerreveals that the matter was considered in a great degree of detailand as referred to in preceding paragraph (which we havereproduced). The expression “income from other sources” wouldcome into play only where income is relatable to a known source.Where the income is not relatable to any known or any bona fidesource, it would necessarily be brought to tax or considered asincome of the assessee, under Section 68 of the Act. Section 68 ofthe Act clearly provides that where a sum is credited in the books ofassessee and the assessee is unable to offer any explanation aboutthe nature and source thereof, or the explanation offered is notsatisfactory, the sum so credited may be charged to income tax asthe income of the assessee of that previous year. What is brought totax under Chapter IV of the Act is an income from a known source,i.e., a particular source from which the income flows but the sourceof a particular revenue receipt cannot be pegged down to anyparticular source, provisions of Section 14 of the Act, particularly“income from other sources”, would not apply and such incomewould necessarily fall under Section 68 of the Act, beingunexplained cash receipts that do not fall within the definition of“income from other sources”. In view of what has been stated hereinabove, we find nomerit in the appeal, much less, that the Income Tax AppellateTribunal or the Assessing Officer have committed any error of lawthat would give rise to a substantial question of law invitinginterference of this Court. Income Tax Appeal No.189 of 2012 11 Dismissed. ( RAJIVE BHALLA ) JUDGE 10[th] September, 2013VK ( DR. BHARAT BHUSHAN PARSOON ) JUDGE