2014 (3) TMI 771 - AT - Income Tax

Addition made u/s 68 of the Act Unaccounted transaction - Whether the money seized from Shri S Sabeer is income of the assessee or not Held that - It is not forthcoming from the order of the assessing authority whether the equivalent amount of Saudi Rials as per the exchange rate was available with the assessee or not on that day - If the equivalent amount of Saudi Rials is not available with the assessee, then the entire transaction would be bogus and the claim of Shri S Sabeer that he received money from Smt. N Radhabai in exchange of Saudi Rials is also false a proper enquiry was not conducted by the lower authorities to find out whether the transaction was made in exchange of Saudi Rials and if so what is the amount of Saudi Rials handed over to the assessee - In the absence of any material, the matter needs to be reexamined by the assessing officer thus, the order set aside and the matter is remitted back to the AO for fresh adjudication. Estimation of profit Held that - Estimation of profit at 1% is very reasonable - It is normal that in foreign currency exchange commission is charged at 3% to 4% by similarly placed traders as found by the assessing officer - the assessing officer has estimated the net profit at 1% very reasonably, therefore, the same is confirmed Decided against Assessee. Claim of loss Held that - The assessee could not produce any details as to how the loss was occurred - the assessee is also engaged in lending of money on pledge of gold jewelleries / ornaments - In the absence of details, the matter is remitted back to the AO for examination as to what exactly the claim of the assessee and from which transaction the loss occurred Decided in favour of Assessee.

Summary

Issues:
1. Addition of unaccounted transaction of Rs.3 lakhs on 18-01-2005.
2. Estimation of profit at 1% by the assessing officer.
3. Disallowance of claimed loss of Rs.36,008 on money lending business.

Analysis:

1. Addition of Unaccounted Transaction:
The case involves the seizure of Rs.3 lakhs from a person during a routine security check, allegedly exchanged for Saudi Rials at the behest of the assessee, a non-resident Indian engaged in money lending business. The assessing officer found the sum unrecorded in the assessee's books, leading to suspicion. However, discrepancies exist regarding the exact nature of the transaction and the presence of requisite stock in trade. The Tribunal noted the lack of thorough investigation by lower authorities and remanded the issue for a fresh examination. The assessing officer was directed to determine the opening and closing balances of currency, verify the exchange details, and establish if the transaction was legitimate or involved unaccounted funds.

2. Estimation of Profit:
The assessing officer had estimated the profit at 1% of gross transactions due to inadequate bookkeeping by the assessee. The Tribunal considered this estimation reasonable, citing industry norms of 3% to 4% commission in foreign currency exchange. Consequently, the 1% estimation was upheld as justified and appropriate.

3. Disallowance of Claimed Loss:
Regarding the disallowed loss claim of Rs.36,008 on money lending activities, the Tribunal found insufficient details provided by the assessee to substantiate the loss. As the nature and origin of the claimed loss were unclear, the assessing officer was instructed to conduct a thorough examination to ascertain the legitimacy of the loss claim. The Tribunal emphasized the need for proper documentation and justification for any claimed losses in the money lending business.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, highlighting the necessity for a more comprehensive investigation and documentation to address the issues raised in the case effectively.