2017 (10) TMI 637 - AT - Income Tax

Suppression of the sales - Held that - In the instant case, suppression of the sales for the month of August 2003 has been established on the basis of discrepancy in the sales recorded in books of accounts and sales recorded in the computer at shop, which is used for billing i.e. primary record of sales. Thus, in view of suppression of the sales found in the month of August, 2003 on the basis of the primary records and not finding of the primary records of the sales for the period from April, 2003 to July, 2003 in the computer at shop, relying on decision of third Member in the case Overseas Chinese Cuisine Vs. ACIT (1996 (1) TMI 148 - ITAT BOMBAY) the habit of suppressing the sales can be presumed to be existing in the period from April, 2003 to July, 2003 and which is a legitimate presumption drawn under the law. We are of the opinion that that the assessee company was engaged in suppression of the sales during the period from April, 2003 to July, 2003 also. The suppression of sales amounting to ₹ 34,96,514/- for the month of April, 2003 to July, 2003 has been worked out on the pro rata basis (58.50 %) of the sales entered in the books of accounts for this period. We do not find any error in the principle employed for working out the amount of suppressed sales for the period from April, 2003 to July, 2003. Working out of profit on suppressed sales - Held that - In principle we are agreed that cost of goods should be reduced out of the sales while working out the profit. But in the instant case, during the course of survey proceedings no evidence was found that assessee incurred expenses on raw material etc. which were not entered in the books of accounts. Thus, it is evident that all the expenses towards the cost of goods, whose sales has not been recorded in the books of account, are already entered in the regular books of accounts. Once the expenses towards the suppressed sales are already entered in the regular books of accounts, such expenses are not required to be reduced out of the suppressed sales. If it is found that both the sales as well as cost of goods sold are not recorded in the books of accounts, then only, while computing the undisclosed profit, the cost of goods should be reduced out of the suppressed sales. But in present case, no such evidence of any cost of goods sold incurred out of books of accounts was found during survey. In the circumstances, we are of the opinion that entire suppressed sales for the period from April, 2003 to the date of survey amounting to ₹ 44,64,425/- is the amount liable to be taxed as undisclosed profit.

Summary

Issues Involved:
1. Rejection of books of accounts.
2. Determination of suppressed sales.
3. Calculation of profit on suppressed sales.

Issue-wise Detailed Analysis:

1. Rejection of Books of Accounts:

The assessee challenged the rejection of its books of accounts. The Tribunal upheld the rejection, agreeing with the CIT(A)'s reasoning that the assessee could not explain discrepancies in sales recorded in two different computer systems at its shop. The Tribunal noted the absence of a day-to-day consumption register or stock register, making the book results unreliable. The Tribunal found no infirmity in the CIT(A)'s decision to reject the books of accounts.

2. Determination of Suppressed Sales:

The Revenue argued that the assessee's director admitted to suppressing sales from April 2003 to the date of the survey in September 2003. The Tribunal noted that the discrepancy in sales for August 2003 was established with sales recorded at ?26,02,765 in the shop's computer and ?16,52,854 in the books of accounts, indicating suppressed sales of ?9,67,911. The survey team extrapolated this discrepancy to the period from April to July 2003, calculating suppressed sales of ?44,64,425. The Tribunal found that the primary records for sales from April to July 2003 were missing, supporting the presumption of continued suppression of sales. The Tribunal upheld the calculation of suppressed sales on a pro-rata basis, finding no error in the principle employed.

3. Calculation of Profit on Suppressed Sales:

The assessee contended that only the profit on suppressed sales should be taxed, not the entire sales amount. The Tribunal agreed in principle but noted that no evidence was found during the survey to indicate that expenses related to the suppressed sales were incurred outside the books of accounts. As all expenses were recorded in the regular books, the Tribunal concluded that the entire amount of suppressed sales, ?44,64,425, should be taxed as undisclosed profit. The Tribunal set aside the CIT(A)'s order on this issue and upheld the Assessing Officer's decision.

Conclusion:

The Tribunal dismissed the assessee's cross objection and allowed the Revenue's appeal, confirming the rejection of books of accounts, the determination of suppressed sales, and the taxation of the entire suppressed sales amount as undisclosed profit. The decision was pronounced in open court on October 13, 2017.