2012 (11) TMI 746 - AT - Income Tax

Undisclosed Income Whether the Appellate Tribunal is right in law and on facts in holding that only the net profit rate can be applied in respect of admitted sales of goods outside the books of account. - Held that - Since these issues are in litigation for a long period and travelled couple of times before the appellate authorities and considering the submissions of the ld. A.R. that the assessees are not inclined to prolong the litigation process and the Bench may arrive at any appropriate profit as it may deem fit and just, we are of the considered opinion, in the interest of justice and fairness to adopt the rate of 3% profit on the suppressed turnover for both the assessees in all the assessment years concerned. - In the result, appeals of the Revenue are partly allowed.

Summary

Issues:
- Deletion of additions made by the Assessing Officer
- Applicability of net profit rate on suppressed sales
- Disallowance of expenditure under section 40A(3) of the Income Tax Act

Analysis:

Deletion of Additions:
The appeals involved challenges to the deletion of additions made by the Assessing Officer in the cases of M/s. Orbit Textiles and M/s. Open Weaves. The issues raised in the appeals focused on the errors alleged in the decisions of the Learned Commissioner of Income Tax (Appeals) in deleting the specific amounts added by the Assessing Officer. The Tribunal noted that all appeals were argued together due to identical issues.

Applicability of Net Profit Rate:
The core dispute revolved around the application of the net profit rate on suppressed sales by the assessees. The Tribunal considered arguments from both sides, with the ld. A.R. advocating for the application of the assessees' net profit rate on the suppressed sales. Conversely, the ld. D.R. relied on precedents and argued for the application of the gross profit rate instead. The Tribunal examined the books of accounts and the statement of affairs of the assessees to determine the appropriate rate to calculate undisclosed income. Ultimately, a 3% profit rate was adopted for both assessees in all relevant assessment years to confirm the additions.

Disallowance of Expenditure under Section 40A(3):
The ld. D.R. contended that if the additions made by the Assessing Officer were not sustainable, either the gross profit rate or the net profit rate should be applied. Additionally, the ld. D.R. argued that cash expenditures made by the assessees would trigger disallowance under section 40A(3) of the Income Tax Act. However, the Tribunal rejected this argument, citing differences in the facts of the case at hand compared to the precedent referenced by the ld. D.R. No findings supported cash payments attracting section 40A(3) provisions in the present case.

In conclusion, the Tribunal partly allowed the appeals of the Revenue, confirming the additions based on the adopted 3% profit rate on suppressed sales for the relevant assessment years.