2015 (10) TMI 2309 - HC - Income Tax

Addition on unaccounted sales - assessee challenging the rate of gross profit estimated at 10% on the ground that it was on the higher side - Held that - Entire sales cannot be added as income of the assessee but addition can be made only to the extent of estimated profits embedded in the sales and that the income from suppressed sales should be determined by assessing the gross profit of the assessee It is evident that the Commissioner (Appeals) had estimated the gross profit at 10%, whereas the Tribunal having regard to the gross profit of the previous year, which was 5.22% and which had been accepted by the revenue has, on the very same material, estimated the gross profit at 6.50%, which is higher than the gross profit accepted by the Department in relation to the previous year. Nonetheless, both, the Commissioner (Appeals) as well as the Tribunal, have resorted to estimation for the purpose of computing the gross profit. Thus, ultimately the gross profit has been determined on the basis of an estimate. As to whether the estimate of gross profit by the Commissioner (Appeals) is to be accepted or that by the Tribunal is to be accepted, cannot in any manner be said to give rise to a question of law, much less, a substantial question of law, so as to warrant interference. - Decided against revenue.

Summary

Issues Involved:
1. Whether the ITAT's decision to dismiss the revenue's appeal and restrict the addition to 10% and 6.5% of unaccounted sales was justified.
2. Whether the Assessing Officer's (AO) determination of unaccounted income and the subsequent adjustments were appropriate.
3. Whether the Commissioner (Appeals) and ITAT correctly estimated the gross profit from unaccounted sales.

Issue-wise Detailed Analysis:

1. ITAT's Decision on Revenue's Appeal:
The revenue challenged the ITAT's decision to dismiss its appeal, where the Commissioner (Appeals) had restricted the addition to 10% of unaccounted sales (Rs. 42,07,397) instead of the AO's addition of Rs. 4,20,73,972. The ITAT further reduced this to 6.5%. The court noted that the ITAT applied established legal principles from CIT v. Samir Synthetics Mill and CIT v. President Industries, which state that only the income embedded in undisclosed receipts can be taxed, not the entire sales. Therefore, the ITAT's decision to restrict the addition was justified.

2. AO's Determination of Unaccounted Income:
The AO conducted a survey under section 133A and found unaccounted income through data in a laptop, revealing Rs. 4,72,05,175 in discounted cheques. The AO added Rs. 4,20,73,972 to the total income after allowing a discount. The court found that the AO rejected the books of accounts under section 145 and treated the entire sum as additional receipt, allowing only a discount deduction. The AO's approach was deemed excessive as it did not consider the corresponding unaccounted expenses.

3. Estimation of Gross Profit by Commissioner (Appeals) and ITAT:
The Commissioner (Appeals) estimated the gross profit at 10% of Rs. 4,20,73,972, considering the past trends and the nature of the business. The ITAT further reduced this to 6.5%, aligning with the highest gross profit rate of 5.22% from the previous year accepted by the department. The court observed that both authorities resorted to estimation due to the lack of precise data, and such estimation does not constitute a substantial question of law. Therefore, the ITAT's and Commissioner (Appeals)'s estimations were upheld.

Conclusion:
The court concluded that the Tribunal and Commissioner (Appeals) correctly applied legal principles and estimation methods. The appeals did not raise any substantial question of law and were summarily dismissed.