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TaxTMI 
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TaxTMI 
2022 (2) TMI 278
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.... Loose Sheets (bunched together), etc., were found and impounded. The same, systematically maintained in the assessee's own hand, revealed unaccounted transactions of the assessees' said business, viz. sales, purchases, expenditure, investments, etc. The assessee failing to show that the same were accounted for in the regular accounts of his business, the same were added to his returned income for the two years under reference, i.e., to which the transactions noted therein were found to pertain. The assessee being unable to improve his case in any manner, the assessments were confirmed in first appeal. Aggrieved, the assessee is in second appeal through his wife and legal representative, Sangeeta Jain, as indeed was the case before the first appellate authority. Arguments 3. Before me, the ld. counsel for the assessee, Shri Seth, would submit that the assessments have been made without proper appreciation of the facts of the case. Addition, he explained, had been made in assessment in respect of unexplained additions to Furniture even as the same find reflection in the assessee's regular accounts. Further, it is only the net profit on unaccounted sales that could be added in asse....
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....sequently, responded to by the other side, even as the appeals bear several grounds, viz., additions toward unexplained expenditure, investment and house-hold withdrawals. 4. I have heard the parties, and perused the material on record. The first and the principal issue arising in these appeals, involving identical additions (i.e., in terms of the nature thereof), save for Rs..9.75 lacs toward unexplained investment in immovable property, which is for AY 2004-05, is the maintainability in law of the additions effected in assessment toward unexplained expenditure, investment, purchases and sales, as evidenced by the entries in the several diaries (viz. Diary Nos. 8, 9 ,12), letter pads (Nos. 4,5) and bunched loose sheets (Nos. 14,15), found during survey and impounded thereat, in the facts and circumstances of the case. The entries therein, representing business transactions, in fact find reproduction - in a tabular form, in the assessment orders, i.e., record-wise, containing also the assessee's explanation as to the nature and source thereof, with in fact most of the entries having been accepted as unaccounted by the assessee. In respect of the addition for Rs..9.75 lacs, the rel....
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....unted for and, thus, explained as to its source. No argument in respect of additions for Rs..18,405 and Rs..8,500 made similarly (for AY 2003-04) were advanced. 5.3 As regards the argument of the addition for both purchases and sales, resulting in inflation therein inasmuch as it could only be for the profit on sale, it may be relevant to state, even as observed during hearing, that while the addition qua sales is u/s. 28, that in respect of purchases is for the unexplained investment therefor - where and to the extent found, u/s. 69C. The same would, thus, obtain irrespective of the addition for unaccounted sales, which could though only be for the profit therein inasmuch as it is only the income comprised therein, and not the entire receipt, that is the subject matter of tax under the Act. The addition for unaccounted sales in the instant case is in fact only toward the unaccounted investment on the corresponding purchases. There is thus, no double addition, nor could be. To exemplify, if there is an unaccounted sale for Rs..100 (say), costing Rs..90, it would result in an addition for Rs..90 (u/s. 69C) and Rs..10 (u/s.28). A single addition for Rs..100, as made by the AO, canno....
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....s direct expenditure, has been added u/s. 69C, so that it is now only the net profit that remains to be added, is only on the assessee, and which has not been shown, nay, not even contended at any stage of the proceedings. This is as the very fact that the sale is unaccounted, itself implies that the corresponding expenditure - direct or indirect, is unaccounted. The addition qua unexplained expenditure, it may be appreciated, is only for want of explanation as to it's source, which is admittedly unaccounted. As such, an unaccounted receipt cannot explain the source of accounted expenditure, nor can unaccounted expenditure be explained with reference to accounted receipt. The issue of gross profit vis-a-vis net profit is thus of no moment. This aspect was in fact not in issue or an issue before the Hon'ble High Court in Balchand Ajit Kumar (supra), or even Man Mohan Sadani v. CIT [2008] 304 ITR 52 (MP), rendered following it. The only issue agitated was whether, in the facts and circumstances of the case, the entire undisclosed sale could be added as income, or is the addition to be restricted to the income comprised therein, and which the Hon'ble Court had no difficulty in answer....
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.... the goods bought out-of-books that could be allowed credit for in computing the profit on the undisclosed sales, subject of course to the corresponding purchases being also, as in the instant case, undisclosed, and as would normally be the case as, otherwise, an assessee is only doing himself a dis-service, converting his accounted money into unaccounted, disabling himself thereby to purchase accounted for goods, besides causing a mismatch between his actual and book-stock. This is therefore normally not undertaken, and is resorted to only to serve some ancillary purpose, as, for example, where the purchaser is not prepared to accept the sale bill, which is, after the sale, prepared in favour of another 'buyer' or 'in cash', routing thus the money received from the actual sale in the books of account. The said decisions would thus be of no assistance to the assessee. Continuing further, the addition for unaccounted purchase of goods, representing the direct expenditure qua sale thereof, which is by virtue of the deeming fiction of s. 69C, could only be for the unexplained source thereof. As argued in the instant case, the assessee has not invested any sum toward purchases, being ....
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....be taken at the same rate as obtaining for the accounted purchases. As the credit period may not be uniform across all parties, and may even vary from time to time, the average of the opening and closing figures is to be taken as the average credit period for the year, which would then be compared with the average stock holding for the year, similarly computed. This would give a fair figure of the extent to which the goods purchased are, prior to their sale, paid for. To demonstrate: (for first year) a) Average stock: [(opening stock-in-trade) + (closing stock-in-trade)]/2 b) Average stock period: [(a)/purchases (f.y.2002-2003)] * 365 days c) Credit period (opening): [(trade creditors (as on 31/03/2002) + (trade creditors (as on 31/03/2003))/purchases (f.y.2002-2003)] * 365 days d) Average credit period: [(a) + (b)]/2 The figures of purchases, stock-in-trade and trade creditors are to be taken as per the assessee's financials, i.e., annual accounts. A comparison of the figures at (b) and (d) would show the extent to which the goods (purchases) are 'unpaid' and 'paid', i.e., on an average, during the relevant year/s. The addition qua unaccounted purchases u/s.69C would be r....
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....t is, though a good purchased is understandably not sold immediately, but only, on an average, with a time lag, this would be rendered of little consequence in view of the stock-in-trade, in almost the same sum, both at the time of purchase and sale. To exemplify the calculation, if the unaccounted purchases and sales found are at Rs..900 (say) and Rs..200/- (say) respectively, and the gross profit rate is 10%, the addition for gross profit would be at Rs..100, as under: (amount in Rs..) a) Unaccounted sales (on the basis of unaccounted purchases): 1000 (900 x 100/90) b) Unaccounted sales (as found): 200 c) Unaccounted sales (for the year): 1000 (being the higher of (a) and (b)) d) Gross profit: 100, being [(c) x 10%] The addition for unaccounted gross profit for both the first (AY 2003-2004) and the second year (AY 2004-2005) shall be worked out accordingly, which, representing the source of profit, would be available for being set off against additions representing the application of profit. (see para 7 (infra)) C. Unexplained Investment (u/s. 69/69A): The addition stands confirmed in view of the discussion at para 5.2; the assessee being unable to make out any case in....
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....remains undisclosed and, thus, unexplained. The argument, appealing at first blush, is misplaced. This is as once it is established as a fact - on the basis of the regular accounts, that the purchases of the assessee's business are on credit (which terms would normally equally apply to unaccounted purchases as well, with payments thereto being in fact made through the banking channel, albeit per undisclosed bank accounts), it would be a contradiction in terms to presume that a purchase gets paid as soon as it is made or, alternatively, the payment being made (i.e., on a particular date) is without availing the normal credit in its respect. The addition, as oft stated in this order, is only toward unexplained source of incurring the expenditure. That is, the credit availed is a structural fact of the assessee's business which cannot be ignored. This aspect could also be explained or understood with reference to the assessee's regular accounts, which reveal a paid-up stock (i.e., stock-in-trade minus trade creditors) at Rs..2.86 lacs and Rs..7.69 lacs as on 31/3/2003 and 31/3/2004 respectively. The purchases for the relevant years being at Rs..95.64 L and Rs..45.94 L respectively, th....
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....ial power of attorney dtd.01/01/1993, Shri Rajkumar Agrawal s/o Late Shri Chhedial Agrawal, and managing partner, M/s. Rajkumar Agrawal Constructions, Wright Town, Jabalpur, had been placed in a position of a seller of the property at Dulari Haat, Jawaharganj, Jabalpur. b). that the assessee purchased a shop (No. 904/GF/02), admeasuring 440 sq. ft., thereat vide a sale deed dated 31/3/2012 for a stated consideration of Rs..3.60 lakhs paid per cheques dtd.15/06/1999 and 15/07/1999 for Rs..2 lakhs and Rs..1.6 lakhs respectively, both drawn on his bank account with PNB. c). on the basis of separate statements of Smt. Manju Jain (Prop. M/s. Manjushree Textiles), Dulari Haat, Jawaharganj, Jabalpur, the buyer of Shop No.4 (at first floor) thereat, and Shri Rajkumar Agrawal (supra), while Smt. Jain had paid Rs..1.50 lakhs for the said shop, i.e., the amount recorded and paid per cheque/s to Shri Rajkumar Agrawal, the latter confirmed to have received Rs..4.50 lakhs for the said shop, and whose statement, on being confronted to Smt. Jain, was not denied by her, furnishing no specific reply. d). no compliance was made by the other three persons, being the owners of the shops in the sa....
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....ey could possibly have been paid during the relevant year (f.y.2003-2004) in respect of a property (i.e., the assessee's shop), acquisition of which stood completed in July, 1999 by making, as stated in the Agreement, full and final payment of Rs. 3.60 lakhs, detailed therein. The argument is valid. But, then, how does that explain that the title deed was executed not on the conclusion of the transaction in July, 1999, but almost 13 years later on March 31, 2012? That apart, even for the sake of argument, if these payments are not for the purchase of the assessee's shop, how does it, as also observed during hearing, help the assessee's case? It is the assessee who is to nevertheless explain the said entries, made in his own hand, in D-9. The same clearly represent payments. If, therefore, not for the said property, what, one may ask, have the same been made for? To no answer by Shri Seth. The same may be for another property, similarly purchased from Shri Agrawal - who is the connecting link, as again observed during hearing, between the payments under reference and the assessee's shop, or for any other purpose. Further, the amount at page 4 (Rs.. 8.85 lakhs) and at pg. 5 (Rs..90,0....
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.... - for which reference stands made to the written submissions before, as well as the orders by, the Revenue authorities, as well as the title deed itself, in this respect. Further, all the documents referred to in the title deed, i.e., on the basis of which the seller/s derive their title to and assume rights in the property at Dulari Haat, Jawaharganj, Jabalpur, so as to be able to transfer the same to a buyer, are dated prior to 15/7/1999, the date of the second cheque given by the assessee to the seller, so that the title deed could have surely been executed thereat or, in any case, much earlier, i.e., if it indeed stood concluded. Nobody would ordinarily make full and final payment without securing title to the property acquired, putting himself in jeopardy as well as fetters to his right to transfer the same. Then, again, it is only for the assessee to explain as to for what purpose the payment stood made (in the presence of Mamaji) on 19/8/2003, concluding the transaction. 6.5 There is another aspect of the matter, which may therefore be discussed. The assessee's shop, surprisingly, is not shown as an asset in his balance-sheets on record (i.e., as on 31/3/2003 and 31/3/2004....
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....s nature and source, much less satisfactorily and, therefore, stands rightly brought to tax by the Revenue. The same is, accordingly, confirmed. I decide accordingly. Telescoping/Set-off 7. As afore-noted, it is not shown, not even contended, that the expenditure other than direct expenditure, i.e., which stands reckoned in computing gross (trading) profit, or indirect expenditure, has been incurred to any extent as a percentage of sales, i.e., in the same (or even a different) ratio of the unaccounted sales, as that obtaining in respect of accounted such expenditure to accounted sales. In fact, there is no reason why such expenditure, which is tax- deductible, should at all be incurred out-of-books as there is no motive - tax or otherwise, therefor. The position is different for direct expenditure inasmuch as the same yields unaccounted profit, to the same or even higher (due to savings on sales-tax) extent, without incurring the liability to income-tax thereon. In fact, even if this is incorrect to any extent, no separate addition for indirect expenditure is called for inasmuch as the entire unaccounted gross profit, wherefrom such expenditure is incurred, stands brought to tax....