2019 (7) TMI 1042 - HC - Income Tax

Addition of unexplained receipts - method of accountancy followed - ITAT deleted the addition - HELD THAT - The appellant has disclosed additional 50 lac rupees in its return filed. The net profit of 50 lac on unrecorded-receipts for the year worked out at ₹ 2,12,91,706/-; gives a net profit rate of 23.48%. Therefore, the profits declared are held reasonable looking to the profit in the business even after reducing the fixed expense. Without prejudice to the above, even otherwise, if unrecorded receipts as worked out by the AO at ₹ 2,57,41,751/- were considered the net profit rate on undeclared receipts comes to 19.42% which is much above the average of last 5 years and is reasonable considering the decreasing trend. As already held that the actual profits and not the entire suppressed receipts are to be added. The profits declared on suppressed receipts (extrapolated for the whole year) at ₹ 50 lac are held reasonable and therefore, any further addition is uncalled for. - Decided against revenue

Summary

Issues:
Appeal under Section 260-A of the Income Tax Act, 1961 against the order passed by the Appellate Tribunal Surat Bench for the Assessment Year 2014-15. Proposed question: Whether the ITAT erred in deleting the addition of unexplained receipts?

Analysis:
The Tribunal's findings under Section 145 of the Act emphasize the computation of income based on the method of accountancy employed by the Assessee. It highlights that if the Assessing Officer is unable to deduce the true income based on the Assessee's method of accountancy, the officer can reject the book result and estimate the income. In this case, evidence of unrecorded receipts led to the rejection of the books, which was accepted by both the Assessee and the Revenue.

The Tribunal examined the facts and concluded that the gross receipts should not be considered as income, but only the profit embedded in those receipts. The AO's failure to estimate corresponding expenditures based on the evidence found was deemed incorrect. The CIT(A) appreciated the controversy correctly, citing the judgment of the jurisdictional High Court. The CIT(A) worked out the total unrecorded receipts and emphasized that only the profit embedded in the suppressed receipts should be added.

Further, the CIT(A) referred to various decisions supporting the approach of adding only the profit embedded in suppressed receipts. The net profit on total receipts for previous years was analyzed, excluding fixed expenses, to determine a reasonable profit rate. The disclosed additional amount by the Assessee was considered reasonable, and any further addition was deemed unnecessary. The Tribunal found no error in the CIT(A)'s order and dismissed the Revenue's appeal.

After hearing the arguments, the High Court upheld the Tribunal's findings, stating that no error of law was committed. Consequently, the Tax Appeal was dismissed.