2021 (8) TMI 1292 - AT - Income Tax

Undisclosed income - mismatch of ITS details as per 26AS which showed gross receipts including FDR interest - HELD THAT - It is a settled proposition of law that in case of difference between the assessees books of account and as per the TDS certificate then on the said difference the only embedded portion of the profits is to be taken into consideration and addition is to be made thereon. There are number of judicial pronouncements by which the principle to this effect has been laid down that the total sale cannot represent as the profit of the assessee. The net profit rate has to be adopted and once the net profit is adopted it cannot be said that there is perversity of approach. Thus taking into consideration the entire aspect of the matter we do not find any justification in making the addition of the entire turnover to the income of the assessee. Having regard to the peculiar facts and circumstances of the case we find it justified to restrict the addition at 5% of the net profit on the gross receipt of 11, 93, 79, 537/-. The Ld. Assessing Officer is directed to grant relief to the assessee as on the above terms.

Summary

Issues:
1. Discrepancy in gross receipts between ITS details and profit and loss account.
2. Addition of undisclosed income based on the difference in receipts.
3. Justification of adding the entire turnover as income.
4. Application of net profit rate in determining additions.

Issue 1: The judgment deals with a case where a proprietorship firm, engaged in civil contracting, faced a challenge regarding a discrepancy in gross receipts between the ITS details and the profit and loss account. The Assessing Officer added an amount to the gross receipts filed by the assessee due to this mismatch.

Issue 2: The Assessing Officer added a specific amount as undisclosed income to the total income of the assessee, based on the difference in receipts. The assessee failed to provide a plausible explanation for the variance, leading to the addition of the amount to the total income.

Issue 3: The Tribunal analyzed the principle that in cases of differences between an assessee's books of account and TDS certificates, only the embedded portion of profits should be considered for addition. It emphasized that the total sales cannot represent the profit, and the net profit rate should be adopted. The Tribunal found no justification in adding the entire turnover to the income and decided to restrict the addition to 5% of the net profit on the gross receipt.

Issue 4: The judgment highlighted the importance of applying the net profit rate in determining additions, rather than considering the entire turnover as income. The Tribunal directed the Assessing Officer to grant relief to the assessee by restricting the addition to 5% of the net profit on the gross receipt. Ultimately, the assessee's appeal was partly allowed based on these considerations.