2022 (9) TMI 865 - AT - Income Tax

Unreported income detected during the survey - Unaccounted gross receipts without allowing deduction towards expenses in this regard - expenditure having been incurred in respect of unrecorded sales - HELD THAT - It is imperative that certain expenses would have been incurred in respect unrecorded sales though not recorded in the books of accounts. During the survey proceedings, while answering to Q.No.30, the assessee stated that No, the entire expenditure related to these receipts is not accounted for in the books of accounts. Therefore it is ascertained by the assessee that there exists unexplained expenditure relatable to the unaccounted receipts. The computation of profit after inclusion of unaccounted sales in the turnover would necessarily require deduction of unrecorded expenses. The Courts in such cases have taken the view that there is a presumption of expenditure having been incurred in respect of unrecorded sales. We find that taxing the entire gross receipts, where the Net Profit ratio is at 82.49%, AO for the relevant assessment year is not justifiable by any stretch of imagination. Similarly the plea of the AR to adopt the Net Profit ratio of 16% based on the assessment order passed for the AY 2019-20 also could not be accepted because of the fact that the assessee himself has admitted a net profit ratio of 17.37% with respect to accounted and unaccounted income of the assessee for the AY 2016-17. We are of the considered view that the net profit ratio shall be computed at the rate of 18%, which is as accepted by the assessee during the survey proceedings. AO is directed accordingly.

Summary

Issues:
Assessment of unaccounted gross receipts as total income without considering expenses deduction.

Analysis:
The appellant filed appeals against the orders of the Ld. Commissioner of Income Tax (Appeals) regarding the assessment years 2016-17, 2017-18, and 2018-19. The appeals were clubbed and heard together. The appellant, a coaching institute, had admitted unaccounted income during a survey operation under section 133A of the Income Tax Act. The Assessing Officer considered the entire unaccounted gross receipts as income for the relevant assessment year, leading to an appeal by the assessee. The appellant contended that the AO did not consider the returns filed disclosing the admitted income during the survey proceedings. The appellant argued that the net profit ratio assessed by the AO was unreasonably high at 82.49% and should be reduced to 18% based on the admitted income during the survey. The Departmental Representative supported the AO's order, claiming no evidence of expenses related to the undisclosed income. The Tribunal found that certain expenses must have been incurred by the assessee in earning the undisclosed income, as admitted by the assessee. The Tribunal noted that the net profit ratio should be computed at 18%, as accepted by the assessee during the survey. Citing judicial precedents, the Tribunal held that taxing the entire gross receipts without considering expenses was not justifiable. Therefore, the Tribunal allowed the appeal of the assessee.

The grounds raised by the assessee in certain points were deemed general and did not require adjudication. The Tribunal's decision on the issues involved in one appeal applied to the other appeals with similar circumstances. Consequently, all three appeals by the assessee were allowed. Regarding the Stay Applications filed by the assessee, as the main appeals were disposed of, the Stay Applications were dismissed as infructuous. The judgment was pronounced on July 21, 2022, by the Appellate Tribunal ITAT VISAKHAPATNAM, with detailed analysis and considerations of the facts and legal aspects involved in the case.