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 ₹ 2850, with the unaccounted cash found during search, i.e., ₹ 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 ₹ 16.91 lacs on the undisclosed turnover of gold (₹ 4570 lacs) and silver (₹ 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 ₹ 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 ₹ 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 ₹ 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 ₹ 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 ₹ 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 ₹ 3.09 lacs, i.e., by assessing the unaccounted cash at a total of ₹ 20 lacs, of which ₹ 16.91 lacs stands depleted as on 31/3/2013 on account of loss, so that the balance ₹ 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 ₹ 50 lakhs is accordingly restricted to ₹ 20 lacs, i.e., including ₹ 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 ₹ 20 lacs, of which ₹ 16.91 lacs in fact gets proved. The assessee, needless to add, shall be entitled to telescoping of this addition to the extent of ₹ 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 (₹ 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 (₹ 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.

Summary

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 ?16.91 lacs based on the seized material, which the AO did not accept, instead assessing a profit of ?110 lacs on an undisclosed turnover of ?5500 lacs and adding ?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 ?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 ?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 ?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 ?20 lacs, including ?16.91 lacs already confirmed. The Tribunal found that the assessee had undisclosed cash of ?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 ?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 ?16.91 lacs, restricting the addition for investment to ?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.