2019 (5) TMI 1111 - AT - Income Tax

Assessment of income - gross profit v/s net profit of suppressed sales - survey u/s 133A - HELD THAT - As relying on SHRI HARIRAM BHAMBHANI 2015 (2) TMI 907 - BOMBAY HIGH COURT and BALCHAND AJIT KUMAR. 2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT we direct the Assessing Officer to assess the income from undisclosed sales in question by applying the net profit rate in place of the gross profit rate undisclosed sales. The net profit rate shall be that which the assessee had disclosed in its regular books of account for the said Assessment Year on recorded sales. In the result, this ground of the assessee is allowed in part. Disallowance u/s 40A(3) and Section 40(a)(ia) - when profits have been estimated as a percentage of turnover, in the case of the assessee - HELD THAT - As decided in M/S PRADEEP SINGH WAZIR VERSUS COMMISSIONER OF INCOME TAX AND ANR. 2017 (3) TMI 1268 - SUPREME COURT the income of the assessee on the total contract receipts had been reached at by applying the net rate of profit after reduction and, thus, no further addition could be made u/s 40(a)(ia). No contrary decisions is brought to our notice by the D/R. We delete the disallowance made u/s 40A(3) and 40(a)(ia) as in this case, the income has been estimated by the AO. Hence, we allow this ground of the assessee. Taxation of excess stock found by the revenue during the course of survey u/s 131 - HELD THAT - As relying on M/S. SUBARNA RICE MILL VERSUS INCOME-TAX OFFICER, WD-2 (3) , BURDWAN 2015 (7) TMI 522 - ITAT KOLKATA we direct the AO to tax only the gross profit embedded in the excess stock found for the Assessment Year. The balance addition is hereby deleted. In the result this ground of the assessee is allowed in part. Also see SMT. MADHU CHHANDA SIRKAR AND VICE-VERSA. 2018 (9) TMI 1775 - ITAT KOLKATA

Summary

Issues involved:
1. Assessment of income from suppressed sales
2. Disallowance under sections 40A(3) and 40(a)(ia) of the Income Tax Act
3. Taxation of excess stock found during survey

Analysis:

1. Assessment of income from suppressed sales:
The first issue addressed in the judgment pertains to the assessment of income from suppressed sales. The Assessing Officer had adopted the gross profit of suppressed sales as the income of the assessee, instead of the net profit. The Tribunal considered relevant case law, including judgments from the Bombay High Court and the Madhya Pradesh High Court, which emphasized taxing the net profit of unaccounted sales. Relying on these precedents, the Tribunal directed the Assessing Officer to assess the income from undisclosed sales by applying the net profit rate disclosed in the regular books of account. Consequently, the Tribunal allowed this ground of the assessee in part.

2. Disallowance under sections 40A(3) and 40(a)(ia) of the Income Tax Act:
The second and third issues revolved around the disallowance under sections 40A(3) and 40(a)(ia) of the Income Tax Act when profits were estimated as a percentage of turnover. The Tribunal referred to a Supreme Court judgment which highlighted that no further addition could be made under section 40(a)(ia) when income had been estimated based on the net rate of profit. In the absence of contrary decisions presented by the revenue, the Tribunal deleted the disallowance under sections 40A(3) and 40(a)(ia) since the income had been estimated by the Assessing Officer. Consequently, this ground of the assessee was allowed.

3. Taxation of excess stock found during survey:
The final issue concerned the taxation of excess stock discovered during a survey conducted under section 131 of the Income Tax Act. The Tribunal considered a judgment from the Jurisdictional High Court and a previous decision by the ITAT Kolkata Bench, which emphasized taxing only the gross profit embedded in the excess stock. Following these precedents and noting the absence of contrary judgments, the Tribunal directed the Assessing Officer to tax only the gross profit related to the excess stock found during the survey. As a result, this ground of the assessee was allowed in part.

In conclusion, the Tribunal allowed the appeals in part, addressing each issue comprehensively based on legal precedents and the specific circumstances of the case.

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