2016 (5) TMI 1482 - AT - Income Tax

Rejection of books of accounts - GP estimation - unaccounted sales - Held that - The assessee is dealing in precious metal like gold and silver and the rates are verifiable and available in open to every customer from MCX gold reports or Sarafa Publications. Thus, the customers who purchase goods from the assessee were well aware about the prevailing market price of these metals at the relevant time. Most of the purchases are from reputed dealers. Very few documents pertaining to the assessment year 2011-12 were seized which suggest that the assessee indulged in trading which was not recorded in the books of accounts. For recorded purchases, the assessee was maintaining day to day stock register with quantities and purchase vouchers. The payments were also made through banking channels. Therefore, the learned CIT(A) s action in enhancing the turnover by 17.5% for all the years is unjustified. There was seizure of documents which suggest unaccounted sales for the assessment year 2011-12 and with a view to plug the loopholes, we are of the view that the enhancement in turnover by 5% on the sales recorded in the books of accounts shall be reasonable for the assessment year 2011-12 The gross profit estimated on unrecorded sales cannot be applied to the recorded sales as the margin of tax also remains with the seller of unaccounted sales while in the recorded sales the prices are increased by VAT which reduces the margin of profit by the similar amount. The cumulative effect of increase in turnover and increase in gold price must have reduced the gross profit for the assessment years 2010-11 and 2011-12 - we are of the view that on unrecorded sales estimated, the profit has to be worked out at the rate of 1.25%. Considering all these aspects we sustain the gross profit rate of 1.25% on the enhanced turnover of gold bullion for the assessment years 2010-11 and 2011-12 and on the recorded turnover disclosed in the books of accounts, we direct to apply gross profit rate of 0.25%. CIT(A) was not justified in considering the combined sales of gold and silver bullion because there was not a single incriminating document or any evidence found on the basis of which the Assessing Officer could reject the book results of purchase/sale of silver bullion. No addition can be made on estimations and on hypothetical grounds with regard to sale of silver bullion. We are also of the view that not only the enhancement made by the CIT(A) in silver bullion account by 17.5% but the application of GP rate of 1.25% applied by the learned CIT(A) is not justified. We, therefore, delete the additions made in silver bullion account for the assessment years 2010-11 and 2011-12. Addition on account of unaccounted investment - Held that - We are of the view that the assessee has made payment in advance through RTGs and submitted a bill issued by Riddhi Siddhi Bullion. The seller has also confirmed the transaction. The copy of bill of exchange obtained from the seller on account of import of goods was also produced. Since it was an imported material and the bar numbers were inscribed on the seized bars which tallied with the purchase bills, we find no merit in sustaining such addition. We, therefore, direct to delete the same. Unexplained purchases - Held that - We find that the assessee has filed confirmation from the seller, the original bills were produced, the purchases are entered in the regular books of accounts and stock register. The payments for these purchases were made through banking channels that too in advance, which are verifiable from the books of accounts as well as from the bank statements. The assessee has submitted necessary documents and evidence in the paper book. Keeping all these facts in view, we find no merit in sustaining the addition. Hence, we delete the same. Addition u/s 68 - identity, creditworthiness and genuineness of the transaction - Held that - We find from the bank statement of M/s Pramila Investment & Finance Limited that there was bank balance of ₹ 32.5 lacs on the last date of the financial year i.e. on 31.3.2009. The interest was paid after deducting TDS. These facts are sufficient to establish that the assessee was able to be discharge the obligation casted upon him u/s 68 of the Act by establishing the identity, creditworthiness and genuineness of the transaction. In this view of the matter, we have no alternate but to delete the addition. Addition of unexplained cash credit u/s 68 - amount received as partners contribution -Held that - Sum was invested by the assessee in the firm, M.P. Real Estate & Developers in earlier years and in this year this amount was received as partners contribution by that firm. Hence, the addition u/s 68 could not be sustained and it was merely refund of partners contribution repaid through cheque. We have no alternate but to delete the addition. Addition of undisclosed income - receipt for non-performance of the agreement - addition made on account of arbitration award - Held that - We find that the so called award was not complete as one of the arbitrators did not sign arbitration award. We further find that the addition has been made only on the basis of presumption that the assessee might have received the amount as per the award but no positive evidence has been brought on record to suggest that such amount was received by the assessee in terms of the agreement/award. It is also a fact that the assessee received ₹ 51 lacs as advance through banking channel which was returned back to the intending buyer. The assessee continued to show this plot of land in the fixed assets in his balance sheet. It is also a fact that Indore Development Authority declared scheme no. 131 on this land. Therefore, the above agreement could not be materialized and as such the land could not be transferred. It was informed that this land is even today under the scheme and not transferable. All the three arbitrators filed affidavits which contain the entire details with the assertion that no damages were paid by the assessee because of non-performance of the agreement due to forcemajeure - addition to be deleted. Addition u/s 68 - Held that - As decided in Shri Barkha Synthetics Limited vs. CIT 2005 (8) TMI 67 - RAJASTHAN HIGH COURT if the transactions are made through banking channels and once the existence of the persons is shown, the assessee company cannot be held responsible to prove whether that person himself has invested the said money or some other person had made investment. The burden then shifts on the revenue to establish that such investment has come from the assessee itself. In the absence of such finding, addition cannot be made u/s 68 in the hands the assessee. Addition based on loose papers - addition on unaccounted entries - Held that;- It is a matter of general knowledge that trading in MCX is being done for short duration of a week s time and in most of the cases they are intra-day transactions which are normally settled by payment/receipt of difference. When such trading is done on behalf of others, brokerage income is earned. Therefore, it would be unrealistic approach to consider entire trading transactions as unrecorded income. The approach of the CIT(A) to consider credit balance appearing in the name of MCX as undisclosed income even after deducting profit earned and recorded in the books cannot be sustained. While carrying out transactions in any commodity exchange like MCX, nominal margin money is required. Therefore, it would be fair and proper to estimate further additional profit over and above disclosed by the assessee. We, accordingly direct to estimate net profit @ 5% on undisclosed income on ₹ 6,50,10,406/- appearing in the trial balance in the name of MCX. This ground of appeal is therefore, partly allowed in favour of assessee. Unrecorded transaction - Held that - CIT(A) has deleted this addition on the basis that since addition of gross profit of ₹ 14.14 crore is already made in this year taking into consideration, the various unrecorded transaction, hence no separate addition is called for, for the entries recorded on page 108-109 of LPS-5. Hence additions of ₹ 20,27,500/-, ₹ 2,34,64,852/- & ₹ 20,22,954/- made on the basis of notings on these pages is deleted . We have also decided the issue of estimating the gross profit and the turnover of the assessee in earlier part of this order. We, therefore, following our above order, direct the Assessing Officer to work out the gross profit as per our above direction. Telescoping benefit - Held that - Telescoping benefit should be given for explaining any subsequent investment or cash credit which could not be explained to full satisfaction. In case any addition is still sustained by applying the GP Rate, it was definitely available for investment in the books. This is an assessment of the undisclosed income which is taxed as earned outside the books of accounts, has to be considered for the investment and for the entries in the loose papers. The learned counsel for the assessee, therefore, correctly prayed that telescopic benefit be given to assessee.

Summary

Issues Involved:
1. Timeliness of the order.
2. Additions based on Gross Profit (G.P.) estimates and entries in books of accounts.
3. Rejection of books of accounts.
4. Suppression of cash sales and enhancement of sales.
5. Unaccounted investment in silver.
6. Unexplained purchases from M/s Hyundai Exports.
7. Addition under Section 68 from various entities.
8. Arbitration award and related payments.
9. Unaccounted cash found.
10. Unrecorded transactions based on loose papers.
11. Unaccounted income from MCX transactions.
12. Unaccounted jewelry.
13. Unaccounted investments in real estate projects.
14. Telescoping benefit for additions.

Detailed Analysis:

1. Timeliness of the Order:
The assessee challenged the observation that the order received on 02/04/2013 was timely. The tribunal did not find any merit in this ground and dismissed it as general in nature.

2. Additions Based on G.P. Estimates and Entries in Books of Accounts:
The assessee contended that the additions based on G.P. estimates and entries already disclosed in the balance sheet were unjustified. The tribunal sustained the rejection of books of accounts for the assessment years 2010-11 and 2011-12 due to discrepancies found in the loose papers and trial balance. However, for the assessment year 2009-10, the tribunal accepted the book results due to the absence of incriminating documents and better book results compared to subsequent years.

3. Rejection of Books of Accounts:
The tribunal upheld the rejection of books of accounts for the assessment years 2010-11 and 2011-12 due to discrepancies and unaccounted entries found in the seized documents. For the assessment year 2009-10, the tribunal directed to accept the book results due to the absence of incriminating documents.

4. Suppression of Cash Sales and Enhancement of Sales:
The tribunal found the enhancement of sales by 17.5% by the CIT(A) to be unjustified. Instead, it directed an enhancement of turnover by 5% for the assessment years 2010-11 and 2011-12. The tribunal sustained the G.P. rate of 1.25% on the enhanced turnover and 0.25% on the recorded turnover.

5. Unaccounted Investment in Silver:
The tribunal deleted the addition of ?2,02,47,590/- made on account of unaccounted investment in silver, as the assessee provided sufficient evidence, including advance payment through RTGs, confirmation from the seller, and matching bar numbers.

6. Unexplained Purchases from M/s Hyundai Exports:
The tribunal deleted the addition of ?17,85,88,277/- as the assessee provided confirmation from the seller, original bills, entries in the stock register, and payments made through banking channels.

7. Addition Under Section 68 from Various Entities:
The tribunal deleted the additions made under Section 68 for amounts received from M/s Pramila Investors & Finance Ltd., M/s Sambhav Exports, M/s Khushi Exports, M/s Vinay Gems, and M/s Sanskar Eximes Pvt. Ltd. The tribunal found that the assessee provided necessary confirmations, PAN details, bank statements, and proof of transactions through banking channels.

8. Arbitration Award and Related Payments:
The tribunal deleted the addition of ?2 crores for the assessment year 2010-11 and ?3 crores for the assessment year 2011-12 related to the arbitration award. The tribunal found that the award was not complete, and there was no evidence of payment or receipt of the amounts mentioned in the award.

9. Unaccounted Cash Found:
The tribunal sustained the addition of ?84,84,900/- as unaccounted cash found during the search, as the assessee admitted this cash as unaccounted in his statement under Section 131.

10. Unrecorded Transactions Based on Loose Papers:
The tribunal sustained the findings of the CIT(A) that no separate addition could be made for the notings on loose papers, as the gross profit addition already covered these discrepancies.

11. Unaccounted Income from MCX Transactions:
The tribunal directed to estimate net profit at 5% on the undisclosed income of ?6,50,10,406/- appearing in the trial balance in the name of MCX. It also directed to add unexplained credit entries of ?95,69,286/- as additional income under Section 68.

12. Unaccounted Jewelry:
The tribunal restored the issue of unaccounted jewelry to the Assessing Officer to work out the additional profit by applying the gross profit on enhanced turnover and to give credit for the same. If any balance towards investment remains, it shall be sustained.

13. Unaccounted Investments in Real Estate Projects:
The tribunal restored the issue of unaccounted investments in real estate projects to the Assessing Officer to work out the additional profit by applying the gross profit on enhanced turnover and to give credit for the same. If any balance towards investment remains, it shall be sustained.

14. Telescoping Benefit for Additions:
The tribunal directed the Assessing Officer to give telescopic benefit while giving effect to the order, allowing the assessee to explain subsequent investments or cash credits with the undisclosed income already taxed.

Conclusion:
The tribunal provided a detailed analysis and directions on various issues, including the rejection of books of accounts, estimation of gross profit, unaccounted investments, and additions under Section 68. The tribunal also emphasized the need for telescopic benefits to avoid double taxation of the same income.