2017 (11) TMI 1672 - AT - Income Tax

Unaccounted sales - treatment of entire unaccounted sales as income especially when the said unaccounted sales itself is quantified before the end of the previous year relevant f or the asst. year under consideration - Held that - Assessee s action in not only accepting the excess stock on the day of survey but also offering the excess profits on unaccounted sales itself is double addition. Be that as it may assessee has agreed to the statement during the course of survey and admitted the incomes of regular profit excess stock and the profit on unaccounted sales as well at the time of filing return itself. It is trite law that unaccounted sales found out during the course of survey or search cannot be added as such and only profit can be brought to tax. What is to be taxed is only unaccounted income and not unaccounted receipts unless the receipts are proved to the income. Here A.O himself quantified the unaccounted sales in survey. Assessee offering of profit @ 24.91% cannot be faulted on the facts of the case. Various case law relied upon by assessee also support the view that only profit margin can be brought to tax but not entire sales. Action of the A.O in bringing to tax entire unaccounted sales on the reason that purchases are not produced cannot be accepted. When both sales and purchases are unaccounted a reasonable profit can only be estimated. Since assessee has already included the excess stock as well as the profit on unaccounted sales no further addition is received. The action of the A.O cannot be supported either on facts or on law.

Summary

Issues:
1. Treatment of unaccounted sales as income
2. Justification of adding entire unaccounted sales to income
3. Rejection of claim regarding profit element on unaccounted sales

Analysis:
1. The appellant, engaged in the business of readymade dresses, filed a return for A.Y. 2013-14 declaring total income of &8377;16,53,670/- with a turnover of &8377;35,86,367/-. The total income included a net profit of &8377;15,92,029/-, which comprised excess stock and gross profit on unaccounted sales. The Assessing Officer (A.O) added the entire unaccounted sales amount of &8377;14,55,072/- to the declared income, leading to a dispute. The appellant argued that only the profit margin should be taxed, as already offered, citing disclosure during a survey under Sec. 133A of the IT Act.

2. The CIT(A) dismissed the appellant's contention due to the inability to provide corresponding purchases to exclude them and upheld the A.O's decision. The appellant's reliance on specific cases was rejected. The appellant's representative argued that since excess stock was also disclosed during the survey, adding the entire unaccounted sales amount was unwarranted. The representative cited case laws supporting the taxation of profit margins rather than entire sales amounts.

3. The Dispute Resolution member analyzed the contentions, noting that the appellant had admitted to excess stock and profit on unaccounted sales during the survey and in the return filing. The member found no reason to interfere with the appellant's returned income, especially considering the higher profit margin on unaccounted sales compared to regular sales. Emphasizing that unaccounted sales should be taxed as income only if proven, the member directed the A.O to delete the addition of unaccounted sales to the income. The member concluded that the A.O's action lacked factual and legal support, allowing the appellant's appeal.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by the parties, and the reasoning behind the decision, preserving the legal terminology and significant phrases from the original text.