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2021 (9) TMI 1241 - AT - Income TaxEstimation of net profit from Trading in Scraps and Granules - Profit on unrecorded sales of scraps - estimation of net profit @25% on unaccounted sales - Certain diaries inventorized as A-1 to A-8 were found and seized by the search party - As argued the unrecorded sales of scrap was not effected by the appellant only in one previous year relevant to A.Y. 2011-12 but factually, it was effected by him in two previous years relevant to A.Y. 2011- 12 and A.Y. 2012-13 - HELD THAT:- AR failed to demonstrate with any positive evidence that the jottings made in these diaries pertain to two financial years. Since, the assessee himself is claiming that he had commenced the unaccounted business of scrap trading during the financial year relevant to A.Y. 2011-12 only and further since, from the seized diaries the assessee has failed to demonstrate that these transactions were also carried out by him during the subsequent financial year too, we find absolutely no infirmity in the views taken by the authorities below that the transactions of unrecorded trading of scrap were carried out by the assessee during the financial year relevant to A.Y. 2011-12 only and consequently, the entire income arising from carrying out such unrecorded transactions is liable to be taxed in the hands of the assessee for the A.Y. 2011-12 only. Accordingly, the Ground No. 1(b) of the assessee is dismissed. Determination of undisclosed income from the undisclosed and unrecorded trading transactions in scrap carried out by the assessee - HELD THAT:- Considering the facts that the assessee has carried out only a trading business on wholesale basis which was commenced by him only in the financial year under consideration and further considering the amount of investment, rate of return on investment etc. in our view, the estimation of the net profit rate so made by the CIT(A) at 25% is quite at a higher side. In all the fairness to both the parties , we restrict the estimation of net profit at 10% of the undisclosed sales. Before us, the assessee has also taken two separate grounds bearing nos. 1(c) and 1(d) for allowing him the benefit of telescoping of the total undisclosed income shown in the return against the net undisclosed income/investment finally determined. We are of the considered view that an assessee is eligible for claim of set-off of the undisclosed income voluntarily shown by himself in the return of income filed u/s. 153A against any undisclosed income/undisclosed investment, finally determined. Accordingly, the AO is directed to work out the net profit at the rate of 10% on the unaccounted sales and after giving due benefit of telescoping of the undisclosed income already shown by the assessee in his return of income (other than those undisclosed income for which a separate specific claim for set-off is made by the assessee), re-compute the total income of the assessee. Unexplained Expenditure being Purchase of Scraps and Granuels - HELD THAT:- It would be fair and reasonable to estimate that the assessee had made initial investment for carrying out undisclosed trading business of scrap equivalent to a half month’s sales of the entire sales made during the period under consideration. Accordingly, in our considered view, the undisclosed investment of the assessee in the initial capital of the business should be computed at 1/24th of the total annual sales of ₹ 9,30,89,378/- found recorded in the seized diaries which works out to be at ₹ 38,78,724/- as against the same determined by the Ld. CIT(A) at ₹ 55,28,966/-. We also direct the Ld. AO that assessee would be eligible to set off of this amount of ₹ 38,78,724/- against the total income of ₹ 3,60,00,000/- surrendered in the return of income furnished under s.153A. Advance payment by the assessee to one Mr. Rahul by invoking the provisions of s.69 - HELD THAT:- We find that the amount of ₹ 29,90,000/- has already been considered by both the authorities below while making/ restricting the addition as aforesaid, in our considered view, no further addition is required on account of advances amounting to ₹ 29,90,000/- made by the assessee to Mr. Rahul. It is well known maxim of the law that the same addition cannot be made twice. Since, while making the separate addition of ₹ 7,83,60,000/-, which includes the advances amounting to ₹ 29,90,000/- given by the assessee to Mr. Rahul, the AO has separately determined the interest amounting to ₹ 1,25,23,200/-, in our considered view, no separate addition is required even in respect of receipt of interest on advance to Mr. Rahul. Accordingly, the Ground Nos. 3(a) & 3(b) of the assessee are allowed. Benefit of telescoping to the assessee in respect of advances given to Mr. Rahul against the additional income surrendered and shown by the assessee himself in his return of income - HELD THAT:- Once the CIT(A) has confirmed the addition under s.69 of the Act, it has to be necessarily held that the advances were given by the assessee during the year under consideration only and not in the earlier years, for the reason that under the provisions of s.69 of the Act, an addition can be made only for the year in which the assessee has been found to have made undisclosed investment. In our view, the Ld. CIT(A) was not correct in sailing on two boats inasmuch while confirming the addition, he has presumingly affirmed that the assessee had made the investment only during the year under consideration but, while considering the benefit of telescoping, the Ld. CIT(A) has presumed that the assessee might have made such investments by giving advances to Mr. Rahul in earlier years. In our considered view, since, we have fully deleted the addition so made by the AO, as aforesaid, the question of telescoping has become academic in nature only. Accordingly, the Ground No. 3(c) of the assessee is allowed. Addition u/s 69 - sale proceeds of land - HELD THAT:- Having held that the assessee had derived income amounting to ₹ 12,60,000/- from partial sale of land, it has to be necessarily held that the sales proceeds of such land amounting to ₹ 40,80,000/- was available with the assessee. We find that the transaction of purchase of land has its nexus with the letter dated 12.01.2011. Business of trading in scrap and other related activities are since the beginning of the year and another seized paper showing loans and advance is having a date of December. Therefore this plea of the assessee that sale proceeds of land was used in giving loans and advances and used in the business of scrap has no merits. Accordingly, the ground no. 5 of the assessee appeal for A.Y. 2011-12 is dismissed.
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