2018 (6) TMI 1512 - AT - Income Tax

Undisclosed income - Entries in the alleged diary - declarations made in his statement u/s 132(4) - Held that - Burden is on the assessee to show that the entries in the alleged diary do not belong to the Asstt. Year 2011-12 by producing cogent evidence to show they relate to the year 1998-99. Revenue cannot be expected to prove that these entries relate to Asstt. Year 2011-12 because of the nature of the entries which are in the personal knowledge of the assessee. It is always open for the assessee to produce relevant material to show that these entries relate to the Asstt. Year 1998-99 not for 2011-12 in the absence of which we find it difficult to accept the bald denial made by the assessee. The findings of the authorities below on this aspect do not suffer any illegality or irregularity and they have to be confirmed. We therefore dismiss Ground Nos. 1 to 3. Outstanding balance to be found from the diary - Held that - Two amounts are surrendered separately as such they cannot be telescoped against each other is not sound and cannot be accepted. These two transactions have an intrinsic link as submitted by the learned AR that it is only out of the sale amount the receivable from the persons listed on the leaf relating to 1.1.1998 arise. We accept the same and direct the authorities to telescope Rs. 2.44 crores into Rs. 2.60 crores in which event nothing over and above the declaration of Rs. 4 crore is taxable. We accordingly answer Ground No.4 in favour of the assessee. Adjustment of the seized amount against the advance tax liability - Held that - Allow the credit for the cash seized towards the advance tax payable by the assessee on the date of seized viz. 11.11.2010 as requested by the assessee. See KANISHKA PRINTS (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE - 2 SURAT 2013 (7) TMI 14 - ITAT AHMEDABAD

Summary

Issues Involved:
1. Addition of Rs. 2.44 crore based on diary entries and retraction of the declaration.
2. Telescoping of Rs. 2.44 crore into Rs. 2.60 crore of unaccounted sales.
3. Adjustment of seized cash against advance tax liability.

Detailed Analysis:

1. Addition of Rs. 2.44 crore based on diary entries and retraction of the declaration:
The assessee challenged the addition of Rs. 2.44 crore, which was based on a declaration made during a search operation under section 132(4) of the Income-tax Act. The assessee argued that the diary entries, which were the basis for this addition, pertained to the year 1998 and not the assessment year 2011-12. The assessee retracted the declaration, initially claiming coercion and later a mistaken understanding of fact or law. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] did not accept the retraction, stating that the entries in the diary were presumed correct under section 292C of the Act. The CIT(A) held that the retraction was not justified, as the assessee failed to provide cogent evidence to show that the entries related to the year 1998-99. The Tribunal upheld the findings of the authorities, stating that the burden of proof was on the assessee to show that the entries did not pertain to the assessment year 2011-12. Consequently, the Tribunal dismissed the assessee's grounds on this issue.

2. Telescoping of Rs. 2.44 crore into Rs. 2.60 crore of unaccounted sales:
The assessee argued that the entire unaccounted sales of Rs. 2.60 crore could not be brought to tax, and only the profit element should be considered as income. The AO and CIT(A) rejected this contention, stating that the Rs. 2.44 crore represented advances receivable and could not be telescoped with the unaccounted sales turnover. The Tribunal, however, found that the unaccounted sales should only be taxed on the profit element, which was determined to be Rs. 10.40 lakhs based on the gross profit rate of 3.74%. The Tribunal directed that the balance of Rs. 2.49 crore, after adjusting the profit element, could accommodate the Rs. 2.44 crore of advances. Thus, the Tribunal allowed the telescoping of Rs. 2.44 crore into Rs. 2.60 crore, resulting in no additional taxable amount over the declared Rs. 4 crore.

3. Adjustment of seized cash against advance tax liability:
The assessee sought to adjust the seized cash of Rs. 1,29,33,500 against the advance tax liability for the assessment year 2011-12. The CIT(A) rejected this request based on Section 132B of the Act, which, as clarified by the Finance Act, 2013, does not include advance tax as an existing liability. The Tribunal referred to the decision in Kanishka Prints P. Ltd., where it was held that seized assets could be adjusted against advance tax liability before the amendment took effect on June 1, 2013. The Tribunal directed the AO to allow the credit for the seized cash towards the advance tax payable by the assessee on the date of seizure, i.e., November 11, 2010.

Conclusion:
The Tribunal dismissed the assessee's appeal regarding the addition of Rs. 2.44 crore based on diary entries but allowed the telescoping of Rs. 2.44 crore into Rs. 2.60 crore of unaccounted sales. The Tribunal also directed the adjustment of the seized cash against the advance tax liability, resulting in the appeal being allowed in part.