2014 (11) TMI 810 - HC - Income Tax

Taxability of enture undisclosed receipt or income imbedded into it - Validity of admission of new plea Discharge of onus - Whether the ITAT was justified in law in admitting a new plea contrary to the facts on record that the net profit in respect of supervision charges should be linked to the receipts of booking of flats contrary to the provisions of Rule 29 read with rule 10 of the Appellate Tribunal Rules and whether the assessee has received unaccounted receipts was justified in law in holding that the AO has to discharge onus in respect of on-money by showing that assessee has invested ₹ 1,58,59,400 out of such receipts whereas claim of assessee for extra expenditure was found to be incorrect Held that - In Commissioner of Income Tax vs. Gurubachhan Singh J. Juneja 2008 (2) TMI 177 - GUJARAT HIGH COURT it has been held that in absence of any material on record to show that there was any unexplained investment made by the assessee which was reflected by the undisclosed sales. Following the decision in DY. CIT (ASSTT) Versus PANNA CORPORATION 2014 (11) TMI 797 - GUJARAT HIGH COURT - The Tribunal rightly held that the entire sales could not have been added as income of the assessee, but only to the extent the estimated profits embedded in the sales for which the net profit rate was adopted entailing addition of income on the suppressed amount of sales - unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed, such addition could not be sustained - not the entire receipts, but the profit element embedded in such receipts can be brought to tax and no interference is required to be made in the decision of the Tribunal accepting such element of profit out of total undisclosed receipt the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Admission of a new plea by ITAT regarding net profit calculation.
2. Justification of ITAT's decision on unaccounted receipts and onus of proof.

Issue 1: Admission of a new plea by ITAT regarding net profit calculation
The Income Tax Appellate Tribunal, Ahmedabad referred two questions under Section 256(1) of the Income Tax Act, 1961. The first question raised was whether ITAT was justified in admitting a new plea contrary to the facts on record regarding the calculation of net profit in supervision charges linked to flat booking receipts. The Tribunal's decision was based on Rule 29 read with rule 10 of the Appellate Tribunal Rules. The second question was whether ITAT was correct in holding that the assessing officer must prove on-money receipts by showing the investment made by the assessee, even though the claim for extra expenditure was found to be incorrect. The Tribunal allowed the appeal filed by the assessee against the order of DCIT(Asstt.) Spl., Surat under section 143(3) of the Act for the assessment years 1987-88 to 1997-98, deleting the addition made by the Assessing Officer.

Issue 2: Justification of ITAT's decision on unaccounted receipts and onus of proof
The Tribunal's decision was challenged by the revenue, arguing that the Tribunal erred in reversing the Assessing Officer's order on on-money collection by the assessee. The revenue contended that tax, interest, etc., should have been collected based on the established on-money collection. On the other hand, the respondent's advocate opposed the reference, stating that only the income, not the entire receipt, should be taxed if on-money collection is believed. The advocate relied on previous court decisions to support this argument, emphasizing that the profit embedded in such receipts should be taxed, not the entire receipts themselves. The Court referred to various judgments, including President Industries, Gurubachhan Singh J. Juneja, and Samir Synthetics Mill, which supported the principle that only the profit element in on-money receipts should be taxed. The Court upheld the Tribunal's decision, stating that no interference was necessary as the legal position dictates taxing the profit element, not the entire receipts.

This detailed analysis of the legal judgment from the Gujarat High Court in 2014 addresses the issues surrounding the admission of a new plea by ITAT regarding net profit calculation and the justification of ITAT's decision on unaccounted receipts and the onus of proof. The Court's decision was based on established legal principles and previous judgments, emphasizing the taxation of the profit embedded in on-money receipts rather than the entire receipts themselves.