2013 (2) TMI 863 - AT - Income Tax

Suppression of sales turnover in respect of sale of IMFL and cooked food, soft drinks / soda, etc. - Held that - In this case it is not in dispute that the purchase made by the taxpayer was recorded in the books of account. It is not the case of the revenue that the taxpayer has purchased any IMFL outside the books of account. Therefore, there is no investment outside the books of account. As found by the PRESIDENT INDUSTRIES. 1999 (4) TMI 8 - GUJARAT HIGH COURT what is to be taken is only the profit element embedded in such suppressed turnover. CIT(A) has rightly found that what is to be added is only the profit element embedded in such transaction and not the entire turnover. Therefore, this Tribunal do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed.

Summary

Issues:
- Assessment of suppressed turnover as profit for income tax purposes

Analysis:
The judgment by the Appellate Tribunal ITAT Cochin involved two appeals by the revenue against orders of C.I.T.(A)-I, Trivandrum for the assessment years 2006-07 & 2007-08. The taxpayer was involved in the sale of IMFL liquor, and a survey revealed suppression of turnover. The assessing officer estimated the suppressed sales at significant amounts for both years. The revenue authorities found discrepancies in the sales figures reported by the taxpayer, leading to the reopening of assessments under section 147 of the Income Tax Act.

The revenue argued that the entire difference between actual sales and reported sales should be treated as undisclosed income. However, the CIT(A) deleted the addition after estimating the gross profit on the suppressed turnover, which the revenue disagreed with. On the other hand, the taxpayer's senior counsel contended that only the profit element embedded in the suppressed turnover should be assessed for income tax, citing precedents from the Gujarat High Court.

After considering both sides' arguments and examining the relevant material, the Tribunal found that the assessing officer had erred in treating the entire suppressed turnover as profit. Referring to the Gujarat High Court's judgment, the Tribunal emphasized that only the profit element embedded in the turnover should be considered for taxation. Since there was no evidence of undisclosed investments or purchases outside the books of account, the Tribunal upheld the CIT(A)'s decision to assess only the profit element. Consequently, the appeals by the revenue were dismissed, affirming the lower authority's order.

In conclusion, the judgment clarified the distinction between suppressed turnover and taxable profit, emphasizing the need to assess only the profit element embedded in such transactions for income tax purposes. The decision aligned with established legal principles and precedents, ensuring a fair and accurate determination of taxable income in cases of sales suppression.