2014 (7) TMI 48 - HC - Income Tax

Deletion of unexplained investment Held that - The Tribunal had remitted to the AO - It is clarified that telescoping can only be done to the extent there is direct nexus of receipt of amount on account of sale of shares which has been invested in the purchase of shares during the period from 1.4.2002 to 31.3.2003 and 1.4.2003 to 31.3.2004 - for the AY 2003-04 and 2004-05, benefit of telescoping shall only be allowed by the AO after recording a finding that there is direct nexus resulting from sale of shares and investment in shares made by the assessee. Deletion of surrender during survey u/s 133A of the Act Held that - Tribunal noticed that the assessee had surrendered a sum of Rs.15 lacs, the credit of which was allowed to him - once the assessee had surrendered the amount, necessary credit could not be denied to him - It could not be shown that the approach of the Tribunal was erroneous in any manner - thus, no interference is called for in the findings recorded by the Tribunal Decided against Revenue.

Summary

Issues:
1. Dispute over the application of Gross profit rate in income tax assessment.
2. Addition of unexplained investment in shares.
3. Telescoping of income in relation to the purchase of shares.
4. Surrendered income during survey operations.

Issue 1:
The High Court addressed the dispute over the application of Gross profit rate in income tax assessment for the assessment year 2003-04. The CIT(A) had applied a Gross profit rate of 0.5% instead of the 1% applied by the Assessing Officer. The High Court clarified that telescoping could only be done if there was a direct nexus between the sale and purchase of shares during specific periods. The Court directed that the benefit of telescoping should only be allowed after verifying this direct connection.

Issue 2:
Regarding the addition of unexplained investment in shares, the Tribunal had remitted the matter to the Assessing Officer. The High Court emphasized that telescoping could only be permitted if there was a direct correlation between the sale proceeds of shares and the investment in shares. The Court directed the Assessing Officer to determine this connection before allowing any benefit of telescoping.

Issue 3:
The High Court analyzed the surrendered income during survey operations. The Tribunal had allowed the credit for the surrendered amount of Rs. 15 lakhs in the hands of the assessee while computing the net income assessable. The Court upheld the Tribunal's decision, stating that once the amount was surrendered, the necessary credit could not be denied to the assessee.

Conclusion:
The High Court resolved the issues related to the application of Gross profit rate, addition of unexplained investment in shares, telescoping of income, and surrendered income during survey operations. The Court emphasized the need for a direct nexus between the sale and purchase of shares for telescoping to be applicable. The Court upheld the Tribunal's decision regarding the allowance of surrendered income in the computation of the assessee's net income.