2019 (2) TMI 1270 - AT - Income Tax

Undisclosed turnover - Turnover including capital disclosed during the course of survey - entire suppressed turnover was made as an income of the appellant u/s 68 - HELD THAT - There is no dispute that this assessee is a commission agent / wholesaler in onion agricultural produce. The argument raised at the department s behest is that of treatment of entire turnover amounting to ₹1,13,00,000/- as undisclosed income of the taxpayer s. We find no merit to agree with the Revenue s instant sole substantive ground. The fact remains that this assessee deals with very highly unorganized business sector is an admitted fact. And also that the impugned turnover represents both cost of material as well as income component. The Revenue fails to rebut the fact that the assessee s accepted profit margin as per records is @ 4% only. The CIT(A) has precisely adopted the said margin only to be assessee s undisclosed income. We hold in these peculiar facts and circumstances that the learned lower appellate authority has neither committed any illegality nor irregularity in adding only the profit element in undisclosed turnover to be income of the impugned assessment year. We therefore decline Revenue s both quantum appeals

Summary

Issues Involved:
1. Assessment of undisclosed income based on turnover.
2. Treatment of entire turnover as undisclosed income.
3. Penalty under sec. 271(1)(c) based on turnover component.

Analysis:

Issue 1: Assessment of Undisclosed Income Based on Turnover
The case involved three appeals for the assessment year 2011-12 related to a single assessee. The Revenue's quantum appeals raised the issue of the CIT(A) allegedly not considering the capital involved for the purchase of a specific amount, leading to the alleged undisclosed sale amount. The CIT(A) had made an addition to the income based on the difference between the declared sales and the undisclosed turnover. The appellant argued that only the profit component should be considered as income, not the entire turnover. The CIT(A) agreed with the appellant, stating that turnover cannot be considered income, and only the profit should be assessed. The addition made by the AO was deleted, and only the estimated profit was upheld, based on the accepted profit margin of 4%.

Issue 2: Treatment of Entire Turnover as Undisclosed Income
The Departmental Representative contended that the entire turnover should be treated as undisclosed income. However, the Tribunal disagreed, noting that the business sector was highly unorganized, and the turnover included both the cost of material and income components. As the accepted profit margin was 4%, the Tribunal upheld the CIT(A)'s decision to consider only the profit element in the undisclosed turnover as income for the assessment year. Consequently, the Revenue's quantum appeals were dismissed.

Issue 3: Penalty under sec. 271(1)(c) Based on Turnover Component
The penalty appeal by the Revenue was also dismissed as the Assessing Officer had levied the penalty based on the entire turnover component. The Tribunal concurred with the CIT(A) in deleting the penalty, as the penalty was imposed on the turnover amount, which was not upheld as undisclosed income. Therefore, the penalty was not justified.

In conclusion, all three appeals by the Revenue were dismissed, with the Tribunal upholding the CIT(A)'s decision regarding the treatment of undisclosed income based on turnover and the penalty imposed under sec. 271(1)(c). The judgment emphasized the distinction between turnover and income, particularly in cases involving unorganized business sectors, and affirmed the importance of considering the profit margin in determining taxable income.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's decision on each matter, maintaining the legal terminology and key points from the original text.