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TMI Blog2019 (6) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... ature, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .09.2013. Incriminating material, disclosing undisclosed transactions of purchase and sale of gold and silver, was found and seized, and statement/s u/s. 132(4) recorded. On the basis of the working made from the seized material, profit was worked out. The same, together with the unexplained stock and cash, was surrendered as income in the hands of the different family members, including the assessee, at an aggregate of ₹ 1025 lacs for the relevant assessment year, i.e., AY 2014-15. The assessee s share in the disclosure, made thus, was at ₹ 615 lacs, i.e., ₹ 310.72 lacs by way of profit and ₹ 304.28 lacs by way of unexplained assets (PB pg. 28). The assessee and the other family members honored the disclosure, also paying tax due thereon. As, however, some of the seized material pertained to the current year, the immediately preceding year, notice u/s. 153A was issued to the assessee on 23.01.2014. The assessee replied on 16.12.2014, stating that the return filed on 23.01.2014 be treated as the return filed in response to the notice u/s. 153A. The question therefore arose as to his undisclosed income (as per the seized material) pertaining to the current ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the same, extended up to the date of search, also agrees with the cash found during search (except for a minor different of ₹ 2,850 / PB pgs. 139-140). This is so as both the purchases and sales are in cash. The Revenue authorities have, again, without commenting adversely on the said working by the assessee, summarily dismissed the same, applying a profit rate of 2%, i.e., as obtaining in another case (Nischal Group), also stated to be subject to search proceedings. In-as-much as the profits translate into cash, which has been taken into account while assessing the undisclosed (unexplained) income for AY 2014-15, to the extent taxed for AY 2013-14 (current year), should be deducted from the income assessed for that year (AY 2014-15) by giving a suitable direction. In other words, as far as the assessee is concerned, it is a zero-sum game, i.e., when both the years are taken together. Discussion Findings 5. We have heard the parties, and perused the material on record. 5.1 Our first observation in the matter is that each year is a separate and independent unit of assessment, and income for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two sides of the same coin, i.e., the debit and the credit sides of a balance-sheet. This is precisely what the assessee seeks to emphasize by referring to its working of profit and the cash generated. It is this that forms the basis of the concept of telescoping . As, however, full data may not be available, and even as there are attempts to compute income following both the methods, the income as per the two methods may not match. It is, in that case, the higher of the two, i.e., the profit or the assets, which would stand to be adopted, even as admitted to by the ld. counsel for the assessee, Sh. Mahajan, during hearing. In fact, implicit in this is the telescoping of the lower amount against the higher amount . For example, if profit and asset-based income is at ₹ 10 lacs and ₹ 8 lacs respectively, it is the former (₹ 10 lacs) that shall prevail, while the latter would if it exceeds ₹ 10 lacs, as (say) ₹ 12 lacs. No assets have been found for the current year (Period 1) in the instant case, so that profit becomes the only basis of income determination. Now, if the undisclosed income for the following year (P2) is asset-based, being higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sale of small quantities to various persons, presumably retailers (refer paras 2.4, 2.6 of the assessment order, and para 3.2 (pg. 30) of the appellate order). Giving our careful consideration to the matter, we are inclined to accept the assessee s claim, i.e., in preference to that of the Revenue. This is, again, for more than one reason. To begin with, the AO himself admits that these transactions cannot be regarded as regular transactions of purchase and sale, i.e., in the retail market, undertaken by the assessee in the regular course of his business, in view of the order size, volume and turnover, justifying on that basis, his not applying the assessee s normal profit rate on the relevant turnover. Then, the assessee s working shows a complete matching (both for gold and silver) of the quantity purchased and sold during the financial year, involving a volume of nearly ₹ 48 crores over a period of a year. This in fact obtains for the succeeding year as well. Now, it is highly improbable, nay, almost impossible, in the regular course of business, that the purchase and sale quantities match, which is only an incidence of a speculative trade, i.e., whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, the profit or, as the case may be, loss, arising to the assessee on these transactions. The assessee claims, on the basis of his working (PB pgs. 91,92), of having incurred a loss of ₹ 16.91 lacs. The Revenue has at no stage, including before us, pointed out any defect in the said working, stated to be based on the seized material. What, again, is there then to doubt the said working ? In fact, as pointed out during hearing by Shri Mahajan, the turnover(s) adopted by the AO are on the basis of this working, though stands incorrectly read by him ( qua silver) at ₹ 19.39 cr. (as against ₹ 1.939 cr.). So much so, 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 (PB pgs. 139-140), 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search that only is relevant, misses the point in that it no way explains a negative cash balance as per the assessee s own working, as at 31/3/2013. Rather, the working up to the search date (03/9/2013), if anything, confirms the cash depletion to that extent (as on 31/3/2013), as it is this working, when completed up to 03/9/2013, explains the excess cash of ₹ 49.58 lacs, i.e., as found in search. Further, why should it, then, not result in a further additional cash of ₹ 16.91 lacs (as on 03/9/2013), is something that only the assessee can explain. 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 returnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 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. We decide accordingly. (also refer para 5.7) 5.7 Finally, is the question of telescoping of the addition of ₹ 20 lacs, i.e., as sustained by us. The assessee s case is that the profit for the current year forms part of the total profit of ₹ 310.72 lacs, estimated on the basis of the seized material. As such, the addition on account of profit for the following year would stand reduced to that extent. The argument, valid in principle, would apply in case of a profit for the current year. For example, if there is a profit of ₹ 100 for the entire period (spanning two years, up to the date of search), a finding of a profit of ₹ 20 (say) for the first (current) year, would imply a profit of ₹ 80 in the following year (up to the date of search). A loss of ₹ 20 for the current year would, on the contrary, imply a profit of ₹ 120 for the following year. That is, the profit fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng chargeable on the earning of the income and is not dependent on its assessment following the machinery provisions of the Act. The question therefore that would arise and need to be addressed in each case is of the application of this principle in the facts and circumstances of the case. Further, in assessing income both income theory and investment and expenditure theory cannot be applied simultaneously ( Asst. CIT v. Badri Ram Choudhary [2008] 13 DTR 177 (Jodh.)). As afore-explained, terming the two theories, thus referred, as source-based and asset-based approaches to income determination, the same, even if attempted together, it is only the higher of the two that would survive or could be applied. In fact, not doing so would lead to a mathematical absurdity. Regard has also been made to the other case law not referred to during hearing, to find nothing herein as inconsistent therewith. The allowance of the benefit of telescoping, a well accepted principle, is again to be on the basis of facts, as explained in Veerasinghaiah Co. (supra). Where, for example, an addition has been made on the basis of investment, the Tribunals refusal to allow the benefit of telesco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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