2021 (10) TMI 724 - AT - Income Tax

Revision u/s 263 - Mismatch in the turnover/ contract receipts - As per assessee there was no undisclosed turnover/ receipts as alleged by the AO on the basis of wrong figures shown in the Service Tax Returns and the turnover as declared in the income tax return was correct - HELD THAT - As consistent view has been taken by the Courts that undisclosed turnover cannot be achieved without incurring corresponding purchases/expenses and, therefore, what can be treated as the income of the assessee is the profit element embedded in the undisclosed turnover/ receipts and not the entire amount of undisclosed turnover/ receipts. This view consistently taken in the various judicial pronouncements cited by the ld. Counsel for the assessee clearly shows that the view taken by the AO while bringing to tax the profit element embedded in the undisclosed turnover/ receipts in the hands of the assessee was a possible view and it was not permissible for the ld. Principal CIT under section 263 to substitute his own view with the possible view taken by the Assessing Officer. As held by the Hon ble Delhi High Court in the case of CIT vs.- Honda Siel Power Products Limited 2010 (7) TMI 38 - HIGH COURT OF DELHI in cases, where the Assessing Officer adopts one of the courses permissible in law, or where two views are possible and the Assessing Officer has taken one of the possible views, the Commissioner cannot exercise his powers under section 263 to differ with the view of the Assessing Officer. Keeping in view this proposition and having regard to the facts of the case, we hold that there was no error in the order of the Assessing Officer under section 143(3) as alleged by the ld. Principal CIT - Decided in favour of assessee.

Summary

Issues:
Mismatch in turnover figures leading to addition of profit element by Assessing Officer under section 143(3); Principal CIT's revision under section 263 based on lack of evidence for unaccounted expenses; Assessee's contention on undisclosed turnover treatment; Assessing Officer's possible view upheld by Tribunal.

Analysis:
The appeal involved a case where the Assessing Officer added the profit element to the total income of the assessee due to a mismatch in turnover figures. The Principal CIT revised the assessment under section 263, claiming the Assessing Officer erred by not proving unaccounted expenses related to the undisclosed turnover. The assessee argued that only the profit element in the undisclosed turnover should be taxed, citing judicial precedents. The Tribunal noted the assessee's explanation during assessment, showing no undisclosed turnover and justifying the correct turnover declared. The Tribunal agreed with the assessee that undisclosed turnover must include expenses, hence only the profit element should be taxed, as consistently held in judicial pronouncements. Referring to the Honda Siel Power Products case, the Tribunal ruled that if the Assessing Officer takes a possible view, the Principal CIT cannot substitute it under section 263. Consequently, the Tribunal canceled the Principal CIT's revision, upholding the Assessing Officer's assessment under section 143(3).

This judgment clarifies the treatment of undisclosed turnover and the importance of considering the profit element when adding to the total income. It emphasizes the need for proper examination of expenses before taxing undisclosed turnover. The decision reaffirms the principle that only the profit embedded in undisclosed turnover should be taxed, not the entire amount. The Tribunal's ruling safeguards against arbitrary revisions under section 263 and ensures adherence to established legal interpretations.