2022 (2) TMI 278 - AT - Income Tax

Unaccounted Purchases u/s. 69C - HELD THAT - Assuming unaccounted purchases for the year at ₹. 20 lacs (say), a 30 day sum would be at ₹.1,64,384 (i.e., 20 lacs 30/365). It is this sum that gets rolled over again and again, i.e., for each subsequent purchase, on being realized through sale, so that it is this sum (₹.1.64 lacs, going by the example) that would therefore stand to be added u/s. 69C. Each sale would though generate profit, and which would stand to be separately added u/s. 28. Reference in this context may also be made to the discussion at para 5.5 ( infra ). A similar computation would stand to be made for AY 2004-05, even as it is only the additional sum (or capital involved) that would stand to be added. As such, if the capital involved for AY 2004-05 works to ₹.2.50 lacs (say), it is the additional sum of ₹.0.86 lacs (2.50 1.64), that would stand to be added u/s. 69C for that year. The immediate source of this accretion to capital would normally be the gross profit, against which, therefore, the same would warrant being set-off. Reference in this regard be made to para 7 ( infra ) of the order. Unaccounted Sales (u/s. 28) - addition for sale out-of-books could only be to the extent of gross profit thereon - HELD THAT - The gross profit on unaccounted sales shall be taken as per the gross profit rates disclosed per the assessee s regular accounts for the relevant years. Even as the sales outside books also fetches saving on sales-tax (or VAT), there is nothing on record to indicate the extent of that benefit, which may also have been shared with the customer, who is generally explained by a retailer to be visited with the said levy if he wants a sale bill. The amount of sales for each of the years under reference would be computed on the basis of unaccounted purchases, as found; or unaccounted sales, as found, taking the higher of the two. The reason is simple. Unaccounted purchases could only be sold out-of-books, with the carry-over stock neutralizing the impact of the time lag between a purchase and sale, i.e., the period, on an average, after which a good purchased is sold. That is, though a good purchased is understandably not sold immediately, but only, on an average, with a time lag, this would be rendered of little consequence in view of the stock-in-trade, in almost the same sum, both at the time of purchase and sale. The addition for unaccounted gross profit for both the first (AY 2003-2004) and the second year (AY 2004-2005) shall be worked out accordingly, which, representing the source of profit, would be available for being set off against additions representing the application of profit. Unexplained Investment (u/s. 69/69A) - HELD THAT - Assessee being unable to make out any case in respect of admitted payment for Furniture, which appears to have been fabricated, so that payments presumably would also have been made for labour, for which no specifics though have been brought on record by the Revenue, nor indeed for the payments made for Furniture during the following year. Unaccounted Expenditure u/s. 69C - HELD THAT - No addition for the same shall survive in view of, as afore-explained, addition of gross profit, which subsumes indirect expenditure. The unaccounted/unexplained capital involved in unaccounted purchases would, accordingly, be also in the same ratio. This amount/s may though not be equal to the amount/s worked as per the method as the same is taken at an average of the opening and closing capital, which is thus without doubt superior, and the approximate working stated here is only to clarify the point being sought to be emphasized. The argument though is valid in principle, and would become applicable, as where, for example, addition is being made for unaccounted stock as found on stock-taking during survey, which would be u/s. 69/69A. The argument of the corresponding purchases having been made on credit would, in such a case, not be available to the assessee, i.e., without establishing the source of such credit. Unexplained investment - HELD THAT - The payment of ₹ 9.75 lacs, ostensibly toward the balance cost of the purchase of shop, i.e., the assessee s business premises at Dulari Haat, Jawaharganj, Jabalpur, shown to carry a premium, i.e., over and above the stated consideration, which Sh. Agrawal to whom it is stated as paid, at least in most part, has been shown to be collecting, has not been explained as to its nature and source, much less satisfactorily and, therefore, stands rightly brought to tax by the Revenue. The same is, accordingly, confirmed Telescoping/Set-off - HELD THAT - This telescoping (of additions), which represents the set-off of the source of profit and its application, so that addition/s for both cannot obtain, and is necessarily to be only at the higher of the two, can, however, only be in respect of the profit realized and, concomitantly, qua application/s of profit subsequent to its realisation. The set off afore-referred cannot therefore be extended to the gross profit for AY 2004-05 as the dates of unaccounted sales corresponding to the unaccounted purchases for the relevant year cannot be ascertained. In fact, the earliest such purchase is in end-April, 2003 (at ₹.43,490), so that even qua this purchase, applying an average stock period of six months that obtains for this year, would imply the corresponding sale as in end-October, 2003, well past the payment of on-money. In fact, the withdrawal of ₹.80,000 which forms part of the on-money of ₹.9.75 lacs, from bank on 18/7/2003, itself shows lack of sufficient unaccounted liquid funds with the assessee for payment. No case for telescoping the gross profit for AY 2004-2005 is thus made out. As regards the issue of telescoping per se , the law in the matter is well-settled, even as reference may be made to the decisions in CIT v. Manick Sons 1969 (2) TMI 14 - SUPREME COURT ; Anantharam Veerasinghaiah Co. 1980 (4) TMI 2 - SUPREME COURT to cite two, which come readily to mind.

Summary

Issues Involved:
1. Maintainability of additions towards unexplained expenditure, investment, purchases, and sales.
2. Quantum of said additions.
3. Unexplained investment in immovable property.
4. Unexplained expenditure and investment in furniture.
5. Double addition due to inclusion of both purchases and sales.
6. Telescoping/Set-off of additions.

Detailed Analysis:

1. Maintainability of Additions:
The principal issue in these appeals is the maintainability in law of the additions effected in assessment toward unexplained expenditure, investment, purchases, and sales, as evidenced by the entries in several diaries, letter pads, and loose sheets found during the survey. The entries, representing business transactions, were systematically maintained by the assessee and were not disowned or denied. Most of the entries were admitted as unaccounted by the assessee, attracting the statutory presumption under section 292C of the Income Tax Act, 1961.

2. Quantum of Additions:
The quantum of the additions made in assessment was also under scrutiny. The assessee contended that the assessments were made without proper appreciation of the facts and that only the net profit on unaccounted sales should be added, not both purchases and sales. The Tribunal clarified that while the addition qua sales is under section 28, the addition in respect of purchases is for the unexplained investment under section 69C. The Tribunal emphasized that the addition for unaccounted sales should only be for the profit therein, not the entire receipt.

3. Unexplained Investment in Immovable Property:
The addition of ?9.75 lakhs towards unexplained investment in immovable property was contested. The Tribunal noted that the assessee failed to satisfactorily explain the payment entries in the diaries, which were presumed to be towards the purchase of a shop. The Tribunal confirmed the addition, stating that the payment of ?9.75 lakhs was not explained as to its nature and source, and thus rightly brought to tax by the Revenue.

4. Unexplained Expenditure and Investment in Furniture:
The addition of ?1,26,096 for AY 2003-04 in respect of unexplained investment in furniture was confirmed. The relevant entries in Diary 12 were admitted as towards the purchase/fabrication of furniture for the assessee’s shop, with credit allowed to the extent recorded in the books of account. No argument was advanced regarding the additions of ?18,405 and ?8,500 made similarly for AY 2003-04.

5. Double Addition Due to Inclusion of Both Purchases and Sales:
The Tribunal addressed the argument of double addition due to the inclusion of both purchases and sales. It clarified that the addition for unaccounted sales is only towards the unaccounted investment on the corresponding purchases. There is no double addition, and the addition for unaccounted sales could only be for the profit therein, not the entire receipt. The Tribunal emphasized that the assessment of income under the Act should be of the real income, subject to the provisions of the Act.

6. Telescoping/Set-off of Additions:
The Tribunal discussed the concept of telescoping or set-off of additions, which represents the set-off of the source of profit and its application. The gross profit for AY 2003-04 would be regarded as utilized for various additions, neutralizing them to the extent of the said gross profit. However, no case for telescoping the gross profit for AY 2004-05 was made out, as the dates of unaccounted sales corresponding to the unaccounted purchases for the relevant year could not be ascertained. The Tribunal concluded that the addition towards unexplained expenditure, investment, purchases, and sales was maintainable, and the quantum of the additions was confirmed with appropriate set-offs.

Conclusion:
The Tribunal partly allowed the assessee's appeals, confirming the additions towards unexplained expenditure, investment, purchases, and sales, with appropriate set-offs for the gross profit realized. The Tribunal emphasized the importance of real income assessment under the Act and clarified the principles of telescoping and set-off of additions.