2016 (2) TMI 1320 - ITAT INDORE

Assessment u/s 153A - incriminating documents found in search or not? - HELD THAT:- We hold that the incriminating documents pertaining to the various assessment years even for years where the assessments are not abated, were found and seized. The assessee himself had admitted before the Assessing Officer that several loose papers seized as Annexure LPS 1 to LPS 5 and BS-1 to BS-5 are having entries relating to personal unaccounted business of the assessee. The assessee himself had prepared a cash flow statement of these unaccounted cash transactions incorporating debit and credit cash transactions. The unrecorded sales and unaccounted assets were also discovered in the search operation. The assessee has also admitted undisclosed income on the basis of these documents and assets. Therefore, the ratio laid down in case laws relied on by the learned counsel for the assessee is not applicable to the facts of the assessee’s case. Considering all these factual aspects, we dismiss all these grounds for all the assessment years raised before us.

Unexplained investment in the share - Proof of unaccounted transaction - HELD THAT:- The revenue’s claim that no promoter would divest with such a huge holding at a very nominal profit is without any basis and only a guess work. The assessee’s contention that the promoters were intended to go for public issue is well established by the fact that expenditure incurred in this regard has been debited in the books of accounts of Adroit Industries Ltd., therefore, the revenue’s contention that the promoters were not intended to go for public issue is not correct - all such allegations are wild and without any basis. The revenue has even failed to bring anything on record to establish that any unaccounted transaction in any form was done by any of the persons of this group and associates. There is no evidence against the assessee with regard to transfer and reacquisition of shares of Adroit Industries Ltd. during the relevant period to the assessment years 2007-08, 2008-09 and 2010-11 respectively. The revenue’s allegations are general and not supported by any evidence - no addition could be sustained only on the basis of guess work or in the absence of any positive evidence. In view of this factual matrix, we find no merit in the addition made - Decided in favour of assessee.

Addition on account of undisclosed income admitted by the assessee in his statement recorded u/s.132(4) - Whether addition was not represented by corresponding unexplained assets, unexplained investment or unexplained transactions in the seized material etc? - HELD THAT:- The judgments relied upon by the first appellate authority while making addition on the basis of assessee’s statement are not applicable to the facts of the assessee’s case in as much as in all the cases either the assessee claimed the statements having been given under threat or intimidation whereas it was a voluntary statement or retraction was filed after many years or no reasons were assigned for retraction or retraction was made despite existence of incriminating material. The facts of the assessee’s case are totally different.

While offering undisclosed income for taxation, the assessee categorically stated that the declaration was on the basis of provisional verification of seized material. While filing return of income pursuant to notice u/s.153A, the assessee scientifically analysed the entire seized material as well as undisclosed investment and assets, worked out peak credit by datewise chronologically arranging unaccounted cash receipts and cash payments and offered the same for taxation as undisclosed income. No income was offered for taxation for assessment year 2012-13 because the undisclosed income determined in earlier assessment years and recovery of cash advanced in earlier period was sufficient for explaining cash payments and undisclosed investments during the year. In view of the facts and legal position discussed above, the assessee humbly request deletion of the addition sustained by the C.I.T.(A) and determine undisclosed income offered by the assessee on the basis of peak credits for various assessment years on the basis of cash book prepared by him and placed before the Tribunal as well as the lower authorities.

CIT(A) has made the addition of difference between the income offered in the statement recorded u/s 132(4) and confirmed in the letter submitted to the Investigation Wing for the assessment year 2012-13 - The peak credit in view of various issues decided in these appeals including appeal in Signet Industries Limited needs to be reworked out. The income worked out of poly product sold out of books and under-invoiced for assessment years 2006-07, 2007-08 and 2008-09 have been held to be taxed in the hands of Signet Industries instead of the assessee. Part of this income was offered by the assessee in his return of income for these years which shall be reduced in view of these facts. Further, various other issues are also restored to the file of the Assessing Officer. Assessing Officer is also directed to rework out the peak amount.

Unaccounted sales and underinvoicing which formed part of income from unaccounted sales and underinvoicing assessed in the case of Signet Industries Ltd.- HELD THAT:- As have already decided this issue in the case of Signet Industries Limited wherein we have upheld the addition in the hands of Signet Industries Limited. The addition upheld in the hands of Signet Industries Ltd. on the basis that these unaccounted sales of poly product and under-invoicing of poly product were product of Logic Poly Products which is a unit of Signet Industries Ltd. Further Signet Industries Limited has filed settlement petition before the Customs & Central Excise Commission and admitted it as unaccounted transaction in its own hands. We have sustained the addition totaling to ₹ 8,13,29,014/- for three assessment years 200607, 2007-08 and 2008-09 in the hands of Signet Industries Limited. We have also directed that this amount may be reduced in case of Mukesh Sangla(assessee) , therefore, on this account we allow this grounds of assessee’s appeal.

Addition on the basis of entries of cash payments and cash receipts recorded in the material found and seized during search - assessee claimed that he has prepared cash receipt and cash payments account on the basis of these documentsand the excess amount has been offered for taxation while the revenue’s claim is that the assessee has not given full details regarding the incoming and outgoing of the cash amounts, therefore, the addition of both cash receipt and cash payment is justified - HELD THAT:- In the case of Signet Industries Limited we have upheld the addition made on the basis of loose papers found and seized by the Central Excise & Customs Department, part of which was offered as income in the hands of the assessee after filing the revised return. We have sustained the addition in the case of Signet Industries Limited with regard to poly product sold out of books and sold by under-invoicing. Therefore, the same amount shall not be available with the assessee to explain various entries for the assessment years 2006-07, 2007-08 and 2008-09 in the assessee’s hands.

We do agree with the pleadings of assessee that once the inflow and outflow of the cash payments is scientifically prepared datewise on the basis of the documents seized during the search operation then the addition can be sustained only of the peak so arrived at. The revenue is not allowed to selectively overlook the entries recorded in the seized material resulting in multiple additions. After considering the complexity of this issue and considering the impact of the issue decided in the case of Signet Industries Limited, we find it appropriate that the issues raised in the various grounds of these appeals of the assessee deserve to the restored to the file of the Assessing Officer with the direction to prepare a scientific datewise receipt and payment account of cash and work out the peak for these years and then make the addition accordingly.

Unaccounted polymer trading - HELD THAT:- We find that on the issue of initial investment we find it appropriate to restore the issue to the file of the Assessing Officer for the reason that we have directed to sustain the addition of peak amount in earlier years. If such amount is available for telescoping the initial investment, this addition shall be deleted. On the issue of the quantum of addition, we hold that it is on higher side as the addition is almost 50% of the unaccounted trading - we direct to reduce the addition if finally sustained to the tune of 10% of the total unaccounted sales of polymer trading. On the issue of estimating the net profit we hold that we have already held 4% of sales as reasonable profit on such sales, therefore, the addition for determining the NP shall be worked out @ 4% of such sales. Since the addition has been made on estimated basis, therefore, no addition is called for by invoking the provisions of section 40A(3)

Bogus purchases of polymer - We uphold the addition up to the NP rate of 4% after considering various pleadings and aspects of the case.

Unexplained investment in jewellery - HELD THAT:- CIT(A) has rightly sustained the addition up to ₹ 74,72,863/- on the diamond ornaments. Similarly, the addition sustained on the silver wares was also justified as the assessee was having no explanation for the same. The assessee himself has offered the silver wares of ₹ 49,49,402/- in his return of income. Moreover, the assessee has disclosed the unaccounted income for the assessment year 2012-13 at ₹ 12,61,00,000/- in the statement recorded u/s 132(4) and the learned CIT(A) has made further addition of ₹ 9,43,55,415/- on the basis of difference between the undisclosed income declared by the assessee in the statements recorded u/s 132(4) and the addition sustained of ₹ 3,17,44,585/- for the assessment year 2012-13. Therefore, we find no merit in these grounds of the assessee’s appeal.

Telescoping of unaccounted income - Addition of peak credit as per cash flow statement prepared from entries recorded in loose paper found and seized during search - HELD THAT:- On perusal of available cash balances for the entire block period as per the cash flow statement, it is quite manifest that Shri Mukesh Sangla had sufficient funds with him to set off addition on account of share application money, share capital, silver wares, Gold and diamond jewellery, unsecured loans, cash transaction with Shri Deepak Kalani and Shri Pankaj Kalani, initial investment for undisclosed polymer trading business etc. Therefore, the addition of peak credit as per cash flow statement prepared from entries recorded in loose paper found and seized during search in Shri Mukesh Sangla’s case as well as addition on account of share application money, share capital, silver wares, Gold and diamond jewellery, unsecured loans, cash transaction with Shri Deepak Kalani and Shri Pankaj Kalani, initial investment for undisclosed polymer trading business etc. in the case of Shri Mukesh Sangla and other group entities would amount to double addition.

From the seized documents, it is clear that the source of undisclosed income in the case of Shri Mukesh Sangla was unaccounted polymer business and other sources. The undisclosed income so generated was available with him to set off against addition on account of share application money, share capital, unsecured loans, cash transactions with Shri Pankaj Kalani and Shri Deepak Kalani etc. Therefore, it is humbly submitted that the addition on account of share application money, share capital, unsecured loans, cash transactions with Shri Pankaj Kalani and Shri Deepak Kalani etc. should be set off against undisclosed income determined on the basis of seized material in the case of Shri Mukesh Sangla.

In all these grounds the assessee has raised the issue of telescoping. After hearing both the sides, we are of the view that wherever it is possible to telescope the unaccounted income with the unxplained investment in any other asset including the jewellery, unexplained cash credits, unexplained investment or unexplained bank transactions, etc. relating to the assessee then such telescoping shall be justified.