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2023 (4) TMI 1277 - AT - Income TaxEstimation of income on undisclosed sales - declaration made by the assessee during the course of survey - Income estimated on undisclosed turnover against the undisclosed excess stock of gold jewellery and bars found during the course of survey - HELD THAT - As application of income earned is found in excess stock found and also in cash deposited in the bank account. The source of earning is from profit earned on undisclosed turnover and application is in stock and cash deposited in Bank. As cash deposited in bank is being adjudicated separated, the assessing officer is directed to telescope the gross profit estimated on turnover outside the books of accounts against the excess stock found. CIT(A) directed the assessing officer to give the telescoping effect of income estimated on undisclosed turnover against the undisclosed excess stock of gold jewellery and bars found during the course of survey. Hence separate addition made by the assessing officer was deleted by CIT(A). We have gone through the above findings of ld CIT(A) and noted that there is no infirmity in the order passed by CIT(A). The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A) and dismiss the ground nos. 1 and 2 raised by the Revenue. Addition on account of cash deposited during the demonetization period - assessee did not explain the source of cash deposited - HELD THAT - It is not a case where turnover outside the books of accounts was detected. The plea of the assessee could have been accepted in the later case and not in the former case as the assessee has deposited the entire cash in the bank account. Therefore, the alternative plea of the assessee was rejected. In view of the above facts, the ld CIT(A) observed that the addition on cash deposit sustained is Rs. 61,80,827/- by the cash in hand of Rs. 26,47,736/-. The net addition sustained was at Rs. 35,33,091/-. The assessee got relief of Rs. 6,76,66,909/- (6,23,35,144 26,29,991 26,47,736). CIT(A) directed the assessing officer to tax the said amount of Rs. 35,33,091/- (7,12,00,000- Rs. 6,76,66,909) u/s 68 of the Act as same was generated not from actual sale of jewellery or bullion, therefore, ld CIT(A) held the claim of sale as bogus as evidenced from entries in computer. Accordingly, the ld CIT(A) directed the assessing officer to tax the amount of Rs. 35,33,091/- as per the provisions of section 115BBE of the Act. We do not find any infirmity in the order of Ld. CIT(A), hence ground No. 3 of Revenue is dismissed. Investment in undisclosed stock - business income OR undisclosed investment - HELD THAT - The source of income was explained and is apparently established and hence section 115BBE of the Act, is not applicable for such business receipts. The provisions of Sections 68 and 69 are not applicable for trading transactions like deposit of cash out of cash sales and excess closing stock. For that reliance can be placed on the judgment of case of Shilpa Dyeing Printing Mills Ltd 2015 (7) TMI 691 - GUJARAT HIGH COURT Therefore, we direct the AO to tax the excess stock/sale, if any, under the head business income, (not u/s 115BBE) and amount of Rs. 35,33,091/- should be taxed at the rate of 2.5% (normal profit rate of assessee). Quantification of excess stock - credit of disclosures during the course of survey and subsequently in the return filed - In assessment year 2017-18, when the survey was conducted, then assessing officer reopened the previous assessment years namely, assessment years viz 2013-14, 2014-15, 2015-16 and 2016-17 and re-estimated the profit on turnover at the rate of 5%. On appeal, ld CIT(A) reduced profit to 2.5%. We note that assessee has declared cash sales/PMGKY Scheme (sales bill reversed-So Stock increased) at Rs. 5,00,00,000/-, hence the assessee is entitled for telescoping of these previous assessment years which were completed after assessment year 2017-18. Therefore, we direct the assessing officer to grant the telescoping of these previous assessment years viz 2013-14, 2014-15, 2015-16 and 2016-17. Estimation of NP - Suppressed sale of jewellery and suppressed sale of bullion - HELD THAT - CIT(A) noted that compared to the average net profit disclosed for these preceeding assessment years, the 5% net profit estimated by the AO is on a higher side. Hence, if the net profit is taken at 2.5% of the unrecorded/suppressed turnover of jewellery which is about 0.87% above the average net profit of 1.63% would meet the ends of justice. Similarly, for bullion the assessee has the separate record of only A.Y 2014-15 and 2015-16 where the average net profit is a loss. In absence of the separate details for bullion for all the proceeding assessment years, the prevalent market rate of 0.2% on sale on bullion would be the appropriate net profit rate. Accordingly, ld CIT(A) directed the assessing officer to estimate the net profit at the rate of 2.5% on the suppressed sale of jewellery and 0.2% on suppressed sale of bullion. This way, ld CIT(A) allowed the appeal of the assessee for all these 3 assessment years partly. We do not find any infirmity in the above conclusion reached by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
Issues Involved:
1. Deletion of addition on account of 5% profit on undisclosed turnover. 2. Restriction of addition on account of cash deposited during demonetization. 3. Taxation of investment in undisclosed stock as business income. 4. Addition on account of excess stock found during survey proceedings. 5. Estimation of profit on undisclosed turnover for various assessment years. Summary of Judgment: Issue 1: Deletion of Addition on Account of 5% Profit on Undisclosed Turnover The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2.85 crores made by the Assessing Officer (AO) on account of 5% profit on undisclosed turnover. The CIT(A) observed that the income earned from undisclosed sales was invested in stock of gold bars, thus taxing both the source of income and its application would amount to double taxation. The Tribunal agreed with the CIT(A) that the assessee is entitled to the benefit of telescoping, relying on the jurisdictional High Court's decision in PCIT vs Aliasgar Anwarali Varteji. Issue 2: Restriction of Addition on Account of Cash Deposited During Demonetization The Tribunal upheld the CIT(A)'s decision to restrict the addition of Rs. 7.12 crores to Rs. 35,33,091/- on account of cash deposited during the demonetization period. The CIT(A) found that the AO did not properly consider the cash sales and recovery from debtors. The CIT(A) directed the AO to tax the balance amount of Rs. 35,33,091/- under section 68 of the Act, as this amount was not generated from actual sales of jewellery or bullion. Issue 3: Taxation of Investment in Undisclosed Stock as Business Income The Tribunal held that the excess stock found during the survey proceedings should be treated as business income and not under section 115BBE of the Act. The Tribunal directed the AO to tax the excess stock/sale at the rate of 2.5% (normal profit rate of the assessee) under the head business income, as the excess stock pertains to the assessee's business. Issue 4: Addition on Account of Excess Stock Found During Survey Proceedings The Tribunal directed the AO to rework the book stock after considering the CIT(A)'s findings that sales worth Rs. 6,49,65,135/- are genuine and the balance sales of Rs. 5,61,80,827/- are bogus. The CIT(A) allowed the issue of excess stock of Rs. 4,67,19,066/- partly for statistical purposes. The Tribunal also noted that the assessee is entitled to telescoping of the previous assessment years' profits against the excess stock found. Issue 5: Estimation of Profit on Undisclosed Turnover for Various Assessment Years The Tribunal upheld the CIT(A)'s decision to estimate the net profit at the rate of 2.5% on the suppressed sale of jewellery and 0.2% on suppressed sale of bullion for the assessment years 2014-15, 2015-16, and 2016-17. The CIT(A) found that the AO's estimation of 5% net profit was on the higher side and directed the AO to apply separate rates for bullion and jewellery. Conclusion: - Appeals filed by the assessee for AYs 2013-14, 2014-15, 2015-16, 2016-17, and 2017-18 are allowed. - Appeals filed by the Revenue for AYs 2015-16 and 2017-18 are dismissed. Order pronounced on 27/04/2023 in the open court.
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