2013 (4) TMI 999 - AT - Income Tax

Summary

Issues Involved:
1. Determination of undisclosed income.
2. Computation of capital receipts.
3. Allowance of business expenses.

Summary:

1. Determination of Undisclosed Income:
The Revenue contended that the Ld. CIT(A) erred in determining the undisclosed income at a lower figure than assessed by the Assessing Officer (A.O.). The A.O. assessed the undisclosed income based on seized documents and statements recorded during a search operation u/s 132 on the premises of the Manek Group and associated entities. The A.O. noted unaccounted sale proceeds and transactions not recorded in regular books, leading to the assessment of undisclosed income for three assessees: Gujarat Multi Gas Base Chemicals Pvt. Ltd (GMGB), Manek Chemical Pvt Ltd (MCPL), and Shri Ram Chemical Industries (SRCI).

2. Computation of Capital Receipts:
The assessees argued that the total receipts included capital receipts which should not be treated as taxable income. They claimed that out of the total receipts of Rs. 9,82,59,103/-, Rs. 1,91,02,221/- were capital receipts. The Ld. CIT(A) accepted this claim after verification, reducing the undisclosed sales to Rs. 7,91,56,882/-.

3. Allowance of Business Expenses:
The assessees further contended that the total payments on the debit side included business expenses and capital outgoings. They claimed Rs. 5,88,32,295/- as business revenue expenditure out of the total payments of Rs. 8,89,48,819/-. The A.O. initially rejected this claim due to a lack of detailed evidence. However, the Ld. CIT(A) allowed the claim after examining the seized documents and the A.O.'s remand report, concluding that the expenses were justifiable and should be deducted from the undisclosed sales.

Conclusion:
The Ld. CIT(A) determined the net undisclosed income for the block period at Rs. 2,03,24,587/- after allowing for capital receipts and business expenses. This was allocated among the three assessees based on their proportionate year-wise sales. The Tribunal upheld the Ld. CIT(A)'s order, dismissing the Revenue's appeals. The decision was influenced by judicial precedents that entire undisclosed sales could not be added as income, but only the estimated profits embedded in those sales.