2015 (2) TMI 907 - HC - Income Tax

Income from undisclosed sale - Tribunal upholding the order of the CIT(A) directing AO to tax 4% net profit on unaccounted sales of ₹ 35 lakhs - entire sales which are unaccounted cannot be undisclosed income of the assessee, particularly as the purchase had been accounted for held by tribunal - Held that - Grievance of the Revenue that Section 69C of the Act is to be invoked and entire amount of undisclosed sales has to be brought to tax is unacceptable as we are unable to appreciate how Section 69C of the Act which speaks of unexplained expenditure is all at relevant for this appeal. We are not concerned with any unexplained expenditure in this case. CIT(A) and Tribunal have came to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, both the authorities held that it is not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income tax. The view taken by the authorities is a reasonable and a possible view. - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 260A of the Income Tax Act, 1961.
2. Tax treatment of unaccounted sales and profits.
3. Application of Section 69C of the Act in cases of undisclosed income.

Analysis:

1. The High Court heard an appeal challenging the Income Tax Appellate Tribunal's order for the Assessment Year 2006-07 under Section 260A of the Income Tax Act, 1961. The main question raised was whether the Tribunal was correct in upholding the CIT(A)'s decision to tax 4% net profit on unaccounted sales of Rs. 35 lakhs without evidence of unaccounted purchases/expenses during a survey operation on the Respondent-Assessee.

2. During a survey under Section 133A of the Act, it was found that the Respondent had not accounted for some sales in the total turnover. Initially, the Director declared Rs. 35 lakhs to be offered for tax, but later explained discrepancies in the statement, attributing them to lack of knowledge about tax laws. Despite the explanation, the Appellant brought the entire Rs. 35 lakhs to tax under 'income from undisclosed sale.'

3. The Respondent appealed to the CIT(A), who noted that no unaccounted invoices were seized during the survey. The CIT(A) considered the circumstances and evidence, concluding that only 4% of the profit earned on the unaccounted sales should be added to the net profit. Thus, only Rs. 1.40 lakhs was deemed taxable, and the remaining Rs. 33.63 lakhs was deleted. The Tribunal upheld this decision, emphasizing that only the net profit from unaccounted sales should be added to the income for tax purposes, not the entire sales amount.

4. The Revenue contended that Section 69C of the Act should apply to tax the entire undisclosed sales amount. However, the Court disagreed, stating that Section 69C pertains to unexplained expenditure and is not relevant in this case. Both the CIT(A) and the Tribunal concurred that since purchases were recorded, only the profit from unrecorded sales should be taxed. The Court found this interpretation reasonable and dismissed the appeal, stating that no substantial question of law arose for consideration.

5. Ultimately, the appeal was dismissed, and no costs were awarded. The judgment highlighted the importance of considering the profit earned from unaccounted sales rather than taxing the entire sales amount in cases where purchases are duly recorded.