Telescoping of undisclosed income against excess gold stock upheld, demonetization cash deposits taxed under section 115BBE with modifications allowed

ITAT Surat upheld CIT(A)'s order directing telescoping of income estimated on undisclosed turnover against excess stock of gold jewellery and bars found during survey. For cash deposits during demonetization period, CIT(A) sustained addition of Rs. 35,33,091 under section 115BBE after allowing relief of Rs. 6,76,66,909. ITAT modified this, directing taxation of excess stock as business income at 2.5% profit rate instead of under section 115BBE. Court approved CIT(A)'s profit estimation at 2.5% for jewellery and 0.2% for bullion sales, and allowed telescoping of previous assessment years' additions. Revenue's appeals dismissed.

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Issues Involved:
1. Deletion of addition on account of 5% profit on undisclosed turnover.
2. Restriction of addition on account of cash deposited during demonetization.
3. Taxation of investment in undisclosed stock as business income.
4. Addition on account of excess stock found during survey proceedings.
5. Estimation of profit on undisclosed turnover for various assessment years.

Summary of Judgment:

Issue 1: Deletion of Addition on Account of 5% Profit on Undisclosed Turnover
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2.85 crores made by the Assessing Officer (AO) on account of 5% profit on undisclosed turnover. The CIT(A) observed that the income earned from undisclosed sales was invested in stock of gold bars, thus taxing both the source of income and its application would amount to double taxation. The Tribunal agreed with the CIT(A) that the assessee is entitled to the benefit of telescoping, relying on the jurisdictional High Court's decision in PCIT vs Aliasgar Anwarali Varteji.

Issue 2: Restriction of Addition on Account of Cash Deposited During Demonetization
The Tribunal upheld the CIT(A)'s decision to restrict the addition of Rs. 7.12 crores to Rs. 35,33,091/- on account of cash deposited during the demonetization period. The CIT(A) found that the AO did not properly consider the cash sales and recovery from debtors. The CIT(A) directed the AO to tax the balance amount of Rs. 35,33,091/- under section 68 of the Act, as this amount was not generated from actual sales of jewellery or bullion.

Issue 3: Taxation of Investment in Undisclosed Stock as Business Income
The Tribunal held that the excess stock found during the survey proceedings should be treated as business income and not under section 115BBE of the Act. The Tribunal directed the AO to tax the excess stock/sale at the rate of 2.5% (normal profit rate of the assessee) under the head business income, as the excess stock pertains to the assessee's business.

Issue 4: Addition on Account of Excess Stock Found During Survey Proceedings
The Tribunal directed the AO to rework the book stock after considering the CIT(A)'s findings that sales worth Rs. 6,49,65,135/- are genuine and the balance sales of Rs. 5,61,80,827/- are bogus. The CIT(A) allowed the issue of excess stock of Rs. 4,67,19,066/- partly for statistical purposes. The Tribunal also noted that the assessee is entitled to telescoping of the previous assessment years' profits against the excess stock found.

Issue 5: Estimation of Profit on Undisclosed Turnover for Various Assessment Years
The Tribunal upheld the CIT(A)'s decision to estimate the net profit at the rate of 2.5% on the suppressed sale of jewellery and 0.2% on suppressed sale of bullion for the assessment years 2014-15, 2015-16, and 2016-17. The CIT(A) found that the AO's estimation of 5% net profit was on the higher side and directed the AO to apply separate rates for bullion and jewellery.

Conclusion:
- Appeals filed by the assessee for AYs 2013-14, 2014-15, 2015-16, 2016-17, and 2017-18 are allowed.
- Appeals filed by the Revenue for AYs 2015-16 and 2017-18 are dismissed.

Order pronounced on 27/04/2023 in the open court.

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