2024 (12) TMI 1055 - AT - Income Tax

Addition of suppressed sales - estimation of income - direction of the CIT(A) to treat 20% of suppressed sales as undisclosed investment - whether only gross profit on suppressed sales can be treated as income - onus to prove that any expenses were incurred outside books of accounts against such suppressed sales - HELD THAT - The assessee has before us filed a detailed list of parties to whom the sales were made during the year. The list includes names of parties for whom consignment sales are also made. We find that the parties to whom sales are made are also the same parties for whom consignment sales are made. There is, however, no details of any commission receipt from such parties for whom consignment sales are made. Assessee has explained the non-charging of commission from such parties stating that such parties are small and petty agriculturalist belonging from unorganized trade and the assessee as a matter of routine had received material from such consignors at its premises to make sales on their behalf. We find from the list of sales produced to parties to whom such kind of sales are being made without charging commission, can not be considered as small and petty agriculturalist. AO and the CIT(A) that proper evidence of consignment sales were not produced before the AO or the CIT(A). We therefore are of the opinion that the assessee explanation is too specious and are devoid of any cogent or documentary evidence. CIT(A) rightly rejected the explanation of the assessee and held the consignment sales as suppressed sales. We also endorse the findings of the CIT(A) that the entire sales, claimed as consignment sales, cannot be treated as income of the assessee and only gross profits on the suppressed sales of Rs 3,71,75,141/- can be treated as income of the assessee. We also uphold the direction of the CIT(A) to treat 20% of suppressed sales as undisclosed investment made in the purchase for such sales. Accordingly, the ground 1 and 2 of the revenue is dismissed.

Issues:
1. Whether the deletion of addition of suppressed sales by the CIT(A) was justified.
2. Whether the entire sales receipts or only gross profits on suppressed sales should be treated as income.
3. Whether 20% of suppressed receipts can be treated as undisclosed investment in purchases.

Analysis:
1. The appeal by the Revenue challenged the deletion of an addition of suppressed sales by the CIT(A). The Revenue contended that the onus was on the assessee to prove any expenses incurred outside the books of accounts against the suppressed sales. The CIT(A) directed the Assessing Officer to determine the gross profit rate of the appellant and treat the profits as taxable income.

2. The assessee claimed that consignment sales were not part of the firm's sales turnover as they acted in a fiduciary capacity for small agriculturists. However, the CIT(A) held that the entire sales receipts cannot be treated as income, only gross profits on suppressed sales should be considered as income. The CIT(A) also directed 20% of suppressed receipts to be treated as undisclosed investment in purchases.

3. The Revenue argued that the CIT(A) erred in deleting the addition as the sales were already accounted for and expenses fully claimed. The assessee explained that the difference in turnover was due to consignment sales not treated as sales of the firm. The Tribunal found the explanation lacking in documentary evidence and upheld the CIT(A)'s decision to treat the suppressed sales as income and undisclosed investment.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to treat only gross profits on suppressed sales as income and consider 20% of suppressed receipts as undisclosed investment. The Tribunal found the assessee's explanation regarding consignment sales lacking in evidence and upheld the CIT(A)'s findings.

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