2019 (6) TMI 389 - AT - Income Tax

Assessment u/s 153A - income assessable and thus the tax impact if any for the current year on the basis of the seized material relating to the said year - if the income assessable for this year would stand to be telescoped against the income assessed for the following year (i.e. AY 2014-15) in-as-much as the same is again based on the entire seized material including that for the current year - HELD THAT - The non-acceptance of the assessee s claims i.e. as to the nature of the transactions as well as the results thereof becomes quizzical; the Revenue admittedly not pointing out any defect therein. The assessee in fact nowhere admits these transactions to be regular purchase and sale transactions. In fact even if he did that would be of no consequence in view of the said working based on seized material showing complete details of the transactions as well as the manner of their execution i.e. as explained including before us. Rather the AO though regards the same as purchase and sale transactions yet admits them to be of whole-sale nature i.e. different from the regular sales in view of the quantities involved justifying his non-application of the profit rate obtaining on the regular sales to the undisclosed turnover. He in fact admits to albeit a part of the transactions as being speculative (para 2.5 of the assessment order). There is also no mention of the parties to whom the sales or from whom the purchases are made nor any evidence of any amount/s outstanding i.e. receivable or as the case may be payable qua these sale and purchase transactions respectively which is again incomprehensible if the same are regarded as regular transactions of purchase and sale particularly considering the large volumes. Revenue has wrongly not accepted the assessee s claim with regard to the nature of the transactions as well as the manner in which the same are executed and settled receiving or as the case may be paying the net difference rejecting the working made on the basis of and evidenced by the seized material which though ought to have been placed on record by either side. Rate of profit or rather the profit or as the case may be loss arising to the assessee on these transactions - HELD THAT - The transactions (both debit and credit) being in cash Sh. Mahajan would show that the said working for the period up to 03/9/2013 i.e. immediately prior to the date of search agrees save for a minor difference of Rs. 2850 with the unaccounted cash found during search i.e. Rs. 49.58 lacs establishing the veracity of the said working. What better proof then could the assessee furnish both as to the nature of the transactions as well as the income (loss) arising therefrom? On the Bench making an inquiry with Sh. Mahajan in this regard as there is no mention of the said working either in the assessment or the appellate order he would make a categorical submission that the same forms part of the assessment and the appellate record toward which in fact certification (in terms of Income Tax (Appellate Tribunal) Rules 1963) stands made by him. We accordingly have no hesitation in accepting the assessee s claim of having in fact incurred a trading loss of Rs. 16.91 lacs on the undisclosed turnover of gold (Rs. 4570 lacs) and silver (Rs. 194 lacs). Undisclosed transactions - HELD THAT - If the assessee can introduce cash (to that extent) on 31/3/2013 he could also on the transactions yielding profit (which is in cash) in the following year withdraw the same. Further it cannot be presumed that the cash depletion is met by the cash available i.e. to the extent it is from the assessee s regular (disclosed) business. This apart from being without evidence would amount to falsifying the assessee s regular books of account. Thus while the assessee is not entitled to set off the admitted loss of Rs. 16.91 lacs which is on account of it being of a speculative business as well as not returning the same an addition to that extent on account of unexplained cash balance which is proved by his own working for the relevant year arises. We hold so. At the same time the additional profit of Rs. 110 lacs on the undisclosed turnover as estimated by the Revenue is deleted. We decide accordingly. Addition on account of the estimated investment involved in the undisclosed business - HELD THAT - As already found the assessee to have undisclosed cash of Rs. 16.91 lacs. The same in the absence of any material suggesting otherwise is regarded adequate for the purpose. This adequacy though without doubt cannot be assessed to the last rupee and can only be taken as broadly indicative. In fact it may well be that the loss at Rs. 16.91 lacs up to 31/3/2013 works to a higher sum for the intervening period up to 28/2/2013 (say) resulting in a larger shortfall in cash and stands reduced on account of subsequent profit. It is even otherwise inconceivable that a concern found with an excess (unaccounted) cash of nearly Rs. 50 lacs (as on 04/9/2013) i.e. other than cash reflected in its regular books of account has nil cash balance at any time. The same is accordingly taken at Rs. 3.09 lacs i.e. by assessing the unaccounted cash at a total of Rs. 20 lacs of which Rs. 16.91 lacs stands depleted as on 31/3/2013 on account of loss so that the balance Rs. 3.09 was available. This is particularly so as the cash with the assessee for which addition stands confirmed may for all we know obtain from the beginning of the year. The addition of Rs. 50 lakhs is accordingly restricted to Rs. 20 lacs i.e. including Rs. 16.91 lacs already confirmed so that no separate addition to that extent shall arise. The import of what is being said is that the addition for capital of the undisclosed business is restricted to Rs. 20 lacs of which Rs. 16.91 lacs in fact gets proved. The assessee needless to add shall be entitled to telescoping of this addition to the extent of Rs. 3.09 lacs against the asset-based additions for the following year. Telescoping of the addition - HELD THAT - profit for the following year would in fact stand to increase by the amount of loss admittedly incurred for the current year in-as-much as that only would result in the total profit for the entire period amounting to that determined and assessed (Rs. 100 in our example). True the loss for the current year does not lead to as found a reduction in the cash balance to that extent. That however is as there can be no negative cash balance so that cash to that extent is otherwise available to the assessee and not because there is no cash depletion to that extent which rather would be a contradiction in terms. The same ought not to be confused with the profit from trading operations. As such rather than a reduction in profit for the following year as assessed the same stands to be increased by the amount of loss incurred in the current year (Rs. 16.91 lacs). No telescoping benefit qua the addition sustained which is thus on account of unexplained cash and not on account of profit which only would translate into asset/s would stand to arise. Assessee appeal is partly allowed.

Issues Involved:
1. Income assessable for the current year based on seized material.
2. Telescoping of income assessed for the current year against the following year.
3. Nature and quantification of transactions.
4. Adjustment of returned income due to undisclosed transactions.
5. Addition on account of estimated investment in undisclosed business.
6. Telescoping of sustained addition.
7. Legal principles and case laws applicable.

Detailed Analysis:

1. Income Assessable for the Current Year Based on Seized Material
The primary issue was the determination of income assessable for the current year based on the seized material. The assessee claimed a trading loss of Rs. 16.91 lacs based on the seized material, which the AO did not accept, instead assessing a profit of Rs. 110 lacs on an undisclosed turnover of Rs. 5500 lacs and adding Rs. 50 lacs towards unexplained investment. The Tribunal found that the assessee's working, which showed a complete matching of purchase and sale quantities, was not defective and should be accepted. The Tribunal concluded that the assessee incurred a trading loss of Rs. 16.91 lacs.

2. Telescoping of Income Assessed for the Current Year Against the Following Year
The collateral issue was whether the income for the current year could be telescoped against the income assessed for the following year. The Tribunal noted that each year is a separate unit of assessment, and income for a particular year should be assessed for that year only. However, the principle of telescoping is valid to avoid double taxation on the same income. The Tribunal held that the telescoping benefit should be allowed where applicable, but it is not a zero-sum game.

3. Nature and Quantification of Transactions
The Tribunal examined the nature of the transactions, which were claimed by the assessee to be rate cut transactions, and found that the transactions were speculative in nature. The Tribunal accepted the assessee's claim that the transactions were not regular purchase and sale transactions but speculative trades settled by paying or receiving the net difference. The Tribunal also noted that the Revenue did not point out any defects in the assessee's working, which was based on the seized material.

4. Adjustment of Returned Income Due to Undisclosed Transactions
The Tribunal found that the assessee's speculative loss of Rs. 16.91 lacs could not be set off against other income due to the provisions of section 73. The loss could also not be carried forward as it was not returned per a return of income u/s. 139(1). The Tribunal added Rs. 16.91 lacs as deemed income under section 69A due to unexplained cash balance.

5. Addition on Account of Estimated Investment in Undisclosed Business
The Tribunal restricted the addition on account of estimated investment in the undisclosed business to Rs. 20 lacs, including Rs. 16.91 lacs already confirmed. The Tribunal found that the assessee had undisclosed cash of Rs. 16.91 lacs, which was adequate for the purpose of liquid capital required for speculative transactions.

6. Telescoping of Sustained Addition
The Tribunal held that the addition of Rs. 20 lacs sustained by it would not qualify for telescoping benefit against the asset-based additions for the following year. The loss for the current year implied a higher profit for the following year, and no telescoping benefit would arise as the addition was on account of unexplained cash and not profit.

7. Legal Principles and Case Laws Applicable
The Tribunal referred to various case laws to support its findings, emphasizing that income must be assessed for the correct year and person. The Tribunal also noted that both 'income theory' and 'investment and expenditure theory' cannot be applied simultaneously, and only the higher of the two should be adopted. The principle of telescoping was upheld based on facts, as explained in Veerasinghaiah & Co. v. CIT.

Conclusion:
The appeal was partly allowed, with the Tribunal accepting the assessee's claim of a trading loss of Rs. 16.91 lacs, restricting the addition for investment to Rs. 20 lacs, and denying the telescoping benefit for the sustained addition. The Tribunal emphasized the correct legal position and factual findings based on the seized material.

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