2019 (1) TMI 1939 - AT - Income Tax

GP Estimation of undisclosed sales - HELD THAT - The Revenue has find out deposits made in the bank account was from unrecorded sales and this is not disputed. With regard to this proposition, the judicial pronouncements placed before us for consideration of various High Courts, the ruling of law is absolutely clear that whenever it is accepted that the deposits are from unrecorded sales or from sales which are not recorded in the books of account then the entire deposits cannot be brought to tax. It is only the profit element involved in those unrecorded sales which can be brought to tax. As case of the assessee it is with regard to unrecorded sales for which the judicial view is absolutely clear that only profit to be taxed in these cases. Therefore, taking entire facts into consideration and the judicial pronouncements placed herein above before us, we hold @10% GP of undisclosed sales to be added to the income of the assessee.

Summary

Issues:
Stay applications infructuous due to recovery of demand by Revenue, Addition of undisclosed income by AO, Confirmation of addition by CIT(A), Interpretation of unrecorded sales, Applicability of profit element in undisclosed sales, GP% calculation for taxing undisclosed sales.

Issue 1: Stay applications infructuous
The appellant filed stay applications and appeals, but the Revenue had already recovered the entire demand, rendering the stay applications infructuous. Consequently, the appeals were heard on merits.

Issue 2: Addition of undisclosed income
During assessment, it was found that a salaried employee of the assessee had significant deposits in a bank account. The Assessing Officer treated these deposits as undisclosed income of the assessee under section 69 of the Income Tax Act. The CIT(A) upheld this addition based on employee and son's statements and the Supreme Court's decision in Zaveri Diamonds case.

Issue 3: Interpretation of unrecorded sales
The appellant argued that the deposits represented unrecorded sales proceeds of the business. Citing various case laws, the appellant contended that only the profit element from such sales should be taxed, not the entire sales proceeds. The appellant provided details of deposits made in various locations to support the claim of unrecorded sales.

Issue 4: Applicability of profit element in undisclosed sales
The Tribunal analyzed the judicial pronouncements and held that only the profit element from undisclosed sales should be taxed, not the entire amount. Referring to the GP% of the undisclosed sales, the Tribunal determined a 10% GP to be added to the assessee's income, deviating from the CIT(A)'s decision based on the specific facts of the case.

Issue 5: GP% calculation for taxing undisclosed sales
Considering the facts and legal precedents, the Tribunal allowed the appeal partly for the assessment year 2009-10, applying a 10% GP of undisclosed sales to the income. The same ruling was applied to the appeals for the subsequent years, resulting in a partial allowance of the appeals for the assessment years 2009-10 to 2011-12.

This detailed analysis of the judgment covers the issues involved, the arguments presented by the parties, the legal interpretations made by the Tribunal, and the final decision rendered in each aspect of the case.