2019 (11) TMI 90 - AT - Income Tax

Addition u/s 69A - unexplained asset of the assessee - whether the lower authorities were justified in treating the gold jewellery weighing 4759.46 gms valued as unexplained asset of the assessee u/s 69A - HELD THAT - Once the assessee had filed affidavits from the customers, the onus on proving the transactions with the parties was discharged and the burden shifted on the AO to disprove the transaction by bringing on record some tangible material to show that the averments made in the affidavit or the explanation offered by the assessee was false or factually incorrect. We however find that having received these affidavits, no manner of any further enquiry was carried out by the AO. We find that in other cases where the assessee had claimed the jewelleries belonged to jewelers or karigars, the AO had issued notices u/s 131 - in the case of jewelleries belonging to the customers, no enquiry from the customers were carried out by the AO by issuing notices u/s 131 of the Act, even though in the sworn affidavits complete address of the customers were available. Having regard to the foregoing facts and also having regard to the trade and custom practiced in the jewellery business and also having regard to the volume of assessee s business, we are of the opinion that the assessee s explanation with regard to jewelleries weighing 1406.27 gms belonging to seven customers should have been accepted by the AO. As regards jewelleries weighing 842.340 gms, we find no further evidences were submitted by the assessee either before the lower authorities or before us to substantiate his explanation. We therefore direct the AO to delete the addition made with reference jewellery weighing 1406.27 gms and uphold the addition of jewellery weighing 842.340 gms. We uphold the addition to the extent of 2343.34 gms (4759.460 548.300 461.550 1406.270) out of 4759.460 gms equivalent to ₹ 65,93,763/- and accordingly assessee gets relief of ₹ 67,98,553/-. Ground No. 1 is therefore partly allowed. Income from unrecorded purchase sale transactions - estimation of benefit of telescoping should be allowed against the addition made on account of unexplained investment u/s 69A - HELD THAT - Since the assessee s transactions of purchase sale preceded the date of search when unexplained jewelleries were found, the necessary inference which one should draw is that the income which the assessee had earned from his undisclosed trading transactions in gold and jewelleries was re-invested in purchase of jewelleries which were found from his possession at the time of search. Accordingly we hold that the profit of ₹ 25,86,426/- determined with reference to the notings found in the seized documents should be telescoped against the addition of ₹ 65,93,763/- as confirmed in Para 8 above and accordingly no separate addition of ₹ 25,86,426/- shall be made. Ground No. 2 of the assessee and Ground Nos. 1 to 5 of the Revenue are therefore partly allowed.

Summary

Issues Involved:
1. Addition of ?1,33,92,316/- under Section 69A of the Income-tax Act, 1961.
2. Addition of ?2,04,69,909/- under Section 69B of the Income-tax Act, 1961 and ?2,23,09,128/- on account of undisclosed income.
3. Telescoping of income from undisclosed transactions against additions made on account of unexplained investments.

Detailed Analysis:

1. Addition of ?1,33,92,316/- under Section 69A of the Income-tax Act, 1961:
The primary issue was the confirmation of the addition of ?1,33,92,316/- made by the AO under Section 69A of the Act. The assessee, involved in the trading and manufacturing of jewelry, was found with gold jewelry and silver coins during a search operation. The AO accepted the source of gold jewelry weighing 3319.44 gms but not the remaining 4759.460 gms.

- Assessee's Argument: The assessee claimed the gold jewelry was carried as a courier for different jewelry firms and for repairs. The AO accepted the source of 3319.44 gms but not the remaining 4759.460 gms. The assessee provided affidavits and documents to substantiate the claim for the remaining jewelry.
- Revenue's Argument: The Revenue contended that the assessee failed to produce customers to substantiate the genuineness of his claim.
- Tribunal's Decision: The Tribunal found that the assessee had sufficiently explained the source of 548.30 gms of gold jewelry carried on behalf of Mr. Navranta Soni but failed to substantiate the source of 700 gms allegedly belonging to M/s Vikram Jewellers. The Tribunal also accepted the conversion of a gold bar into jewelry within two days. The Tribunal directed the AO to delete the addition of 1406.27 gms belonging to seven customers but upheld the addition of 842.340 gms for which no evidence was provided.

2. Addition of ?2,04,69,909/- under Section 69B of the Income-tax Act, 1961 and ?2,23,09,128/- on account of undisclosed income:
During the search, certain pocket diaries and loose documents were seized. The AO noted that the document MKJ/5 contained notings regarding inward and outward movement of gold, which did not form part of the regular books. The AO added ?2,04,69,909/- as unexplained investment and ?2,23,09,128/- as undisclosed income.

- CIT(A)'s Decision: The CIT(A) restricted the addition to ?18,39,219/- by allowing the setoff for the purchase of unaccounted gold against the sale of unaccounted jewelry.
- Revenue's Argument: The Revenue contended that the assessee had two distinct businesses and the CIT(A) erred in correlating the notings of raw gold with the sale of gold jewelry.
- Tribunal's Decision: The Tribunal found that the lower authorities misdirected themselves in drawing inferences from the documents. The Tribunal held that the profit element of 8% on the unrecorded transactions should be considered as the assessee’s income. The Tribunal directed the AO to consider ?25,86,426/- as the assessee’s income from unrecorded transactions.

3. Telescoping of income from undisclosed transactions against additions made on account of unexplained investments:
The assessee argued for the benefit of telescoping, i.e., using the income from undisclosed transactions to explain the source of unexplained investments.

- Tribunal's Decision: The Tribunal accepted the assessee’s contention, supported by the Supreme Court's decision in Anantharam Veerasinghaiah & Co Vs. CIT, that the income earned from undisclosed transactions should be used to explain the unexplained investments. The Tribunal directed that the profit of ?25,86,426/- determined from unrecorded transactions should be telescoped against the addition of ?65,93,763/-.

Conclusion:
The Tribunal partly allowed the appeals of both the assessee and the Revenue. The addition under Section 69A was reduced, the addition under Section 69B and undisclosed income was recalculated considering the profit element, and the benefit of telescoping was granted to the assessee. The final adjustments were made accordingly.