COMMISSIONER OF INCOME TAX-III, LUDHIANA vs. B.K. JAIN

This order shall dispose of ITA Nos.37 and 38 of 2011 as learned counsel for the parties are agreed that common question of law is involved in both the appeals besides one additional question in ITA No.38 of 2011. However, the facts are being extracted from ITA No.37 of 2011. 2. ITA No.37 of 2011 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 29.4.2010, Annexure 3, passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A' Chandigarh in ITA No.1088/CHD/2008, for the assessment year 2003-04, proposing to raise following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in upholding the order of CIT(A) dated 29.9.2008, thereby deleting the addition by applying rate of 0.5% as against 1% applied by the Assessing Officer? Singh Gurbax 2014.06.10 13:44 integrity of this document High Court Chandigarh ii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in upholding the order of CIT(A) dated 29.9.2008 thereby deleting the addition of ` 64,86,705/- made by the Assessing Officer on account of unexplained investment?

On 14.11.2011, while issuing notice of motion, the following order was recorded:- “The Revenue has claimed the following substantial questions of law arising out of the order dated 29.4.2010 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh:

The admission order passed on 31.1.2012 reads thus:- “Admitted on the following question of law:- (I) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in upholding the order of CIT(A) dated 29.9.2008, thereby deleting the addition of ` 64,86,705/- Singh Gurbax 2014.06.10 13:44 integrity of this document High Court Chandigarh made by the Assessing Officer on account of unexplained investment?”

In view of the above, question No.(ii) arises for consideration in ITA No.37 of 2011. 6. In ITA No.38 of 2011, similarly, identical question No.(I) was held to be covered by decision in ITA No.36 of 2011 and it was admitted on 31.1.2012 for determining the following questions of law:- (I)Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in upholding the order of CIT(A) dated 29.9.2008, thereby deleting the addition of ` 74,04,000/- made by the Assessing Officer on account of unexplained investment? (II)Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in deleting the addition of ` 15,00,000/- made on account of surrender made by the assessee during the survey under Section 133A of the I.T. Act?”

A few facts relevant for the decision of the controversy involved, as narrated in ITA No.37 of 2011, may be noticed. The assessee was a Chartered Accountant by profession and operating from his office cum residence at 94-D, Bhai Randhir Singh Nagar, Ludhiana. He had not furnished his return of income for the years under consideration within the time allowed under Section 139 of the Act. Survey operations were carried out under Section 133A of the Act at the office of the assessee on 15.6.2004 and it was discovered that the assessee was engaged in giving accommodation/book entries on account of long/short term capital gains/gifts/loans by charging commission. The cash received from different beneficiaries was deposited in various bank accounts of the assessee, his Singh Gurbax 2014.06.10 13:44 integrity of this document High Court Chandigarh family members and other share brokers from where cheques were issued in favour of the clients for bogus capital gains/share profits/gifts etc. The assessee in his statement recorded during the course of survey on 15.6.2004 admitted these facts. Simultaneous survey operation under section 133A of the Act was carried out at the business premises of other brokers at Ludhiana and they admitted to have issued cheques for bogus profits against cash provided by clients. The assessee after conclusion of survey vide letter dated 1.3.2005 made a surrender of ` 27 lakhs i.e ` 15 lakhs relating to assessment year 2004-05 and ` 12 lacs relating to assessment year 2005-06. The income surrendered by the assessee was disclosed in the return of income furnished for the assessment years 2004-05 and 2005-06. The assessee had not furnished any return of income since after assessment year 1996-97 till the date of survey on 25.6.2004. In view of the information gathered during the survey, the Assessing Officer found that the assessee's income relevant to the assessment year 2003-04 had escaped assessment within the meaning of Section 147 of the Act and hence proceedings under Section 148 of the Act were initiated, in response to which the assessee furnished return of income declaring income of ` 48,000/- relating to the assessment year 2003-04 on 30.3.2005. Assessment for the assessment year 2003-04 was completed under Section 143(3) read with section 147 of the Act on 30.3.2006 at total taxable income of ` 1,82,69,609/-. Aggrieved by the order, the assessee filed appeal before Commissioner of Income Tax (Appeals) II, Ludhiana [CIT(A)]. Vide order dated 29.9.2008, Annexure 2, the CIT(A) held that Gross profit rate of 0.5% be applied on the turnover as against 1% applied by the Assessing Officer Singh Gurbax 2014.06.10 13:44 integrity of this document High Court Chandigarh and also addition of ` 64,86,705/- made on account of unexplained investment in the purchase of shares was deleted. Both the assessee and the department filed appeals before the Tribunal. Vide order dated 29.4.2010, Annexure 3, the Tribunal dismissed the appeal of the revenue in ITA Nos.1087 to 1089/Chd/2009 and partly allowed the appeal of the assessee in ITA Nos.1094 to 1096/Chd/2008. Hence the present appeals by the revenue.

We have heard learned counsel for the parties and perused the record.

Learned counsel for the revenue submitted that while remanding the issue to the Assessing Officer, the Tribunal had erred in directing that telescoping should be done on the basis of income assessed in the earlier years while computing the unexplained investments. It was urged by the learned counsel for the revenue that the Assessing Officer had recorded that the assessee had made further investment of ` 64,86,705/- for the purchase of 3,83,000 shares during the previous year relevant to the assessment year 2003-04. In such a situation, once there was no sale of shares, the scope of telescoping does not arise. Reliance was placed on judgments in Anantharam Veerasinghaiah & Co. v. CIT, (1980) 123 ITR 457 (SC), CIT v. K.N.Satyapalan, (2001) 247 ITR 105 (Ker) and Grover Fabrics (India) (P) Limited v. CIT, (2011) 332 ITR 312 (P&H).

On the other hand, counsel for the assessee supported the order passed by the Tribunal.

After hearing learned counsel for the parties and perusing the record, we find that the issue arising under Question No.1 in both the Singh Gurbax 2014.06.10 13:44 integrity of this document High Court Chandigarh appeals as per order of the Tribunal stands remitted to the Assessing Officer. It is, however, clarified that telescoping can only be done to the extent there is direct nexus of receipt of amount on account of sale of shares which has been invested in the purchase of shares during the period from 1.4.2002 to 31.3.2003 and 1.4.2003 to 31.3.2004. Therefore, for the assessment years 2003-04 and 2004-05, benefit of telescoping shall only be allowed by the Assessing Officer after recording a finding that there is direct nexus resulting from sale of shares and investment in shares made by the assessee. Question (I) in both the appeals stands answered accordingly.

As regards the substantial question of law (II) in ITA No.38 of 2011, the Tribunal had recorded the following findings:- “49. The Assessing Officer in the present case had worked out the additional income to be included in the hands of the assessee on the basis of various evidences found during the survey operations. The assessee during the course of survey had surrendered an additional income of ` 15 lakhs relating to assessment year 2004-05 which in turn was returned by the assessee in his return of income for the year. We find merit in the claim of the assessee that the credit of income surrendered at ` 15 lakhs is to be allowed in the hands of the assessee while computing the net income assessable in the hands of the assessee, as the assessee had already offered the said additional income of ` 15 lakhs in his return of income. Accordingly, the ground No.11 raised by the assessee in assessment year 2004- 05 is allowed.” It was noticed by the Tribunal that the assessee had surrendered a sum of `15 lacs, the credit of which was allowed to him. It may be noticed that once the assessee had surrendered the amount, necessary credit could not be denied to him. It could not be shown that the approach of the Tribunal was Singh Gurbax 2014.06.10 13:44 integrity of this document High Court Chandigarh erroneous in any manner. Thus, no interference is called for in the findings recorded by the Tribunal on this issue.

In view of the above, both the appeals are disposed of. (Ajay Kumar Mittal) Judge May 19, 2014