2022 (4) TMI 616 - AT - Income Tax

Estimation of profit on the suppressed sale - Additional undisclosed income - bogus/ suppressed sales - cash found during the course of search proceedings by the excise department - AO worked out the undisclosed sales applying GP rate of 10.32% on the cash seized thereafter worked out the GP rate of @25% on the said bogus/ suppressed sales - CIT-A deleted the addition - HELD THAT - The assessee was engaged in making clandestine sale in order to avoid the excise liability. The assessee from such activity has generated the income which was the cash found during the course of search by the excise department. Thus, it is inferred that such cash was generated by the assessee from the unaccounted business sales carried out by it. It is also a fact on records that the assessee has duly complied with his commitment made before the revenue for disclosing the income of the unaccounted cash. The revenue has not brought anything on record pointing out the amount of suppressed sale exceeds what has been determined by the excise department. Thus in the absence of any contrary information, we hold that the amount of suppressed sale stands at ₹ 6,40,52,547/- which contains the amount of gross profit of the assessee not offered to tax. Be that as it may be, the income of the assessee cannot exceed the amount of cash found during the course of search by the excise department. It is for the reason that the maximum amount which was found unaccounted can only be brought to tax until and unless there is any other material found during the search suggesting that there was any other income other than the income embedded in the suppressed sales. Furthermore, the revenue has not brought any material on record suggesting that the assessee has made suppressed sales over and above the amount determined by the excise department. Thus in the absence of any information available on record, we hold that the AO has wrongly determined the gross profit by working out the suppressed sale more than the amount determined by the excise department. Thus the appeal filed by the revenue is hereby dismissed and the CO filed by the assessee is allowed.

Summary

Issues Involved:
1. Deletion of addition of ?2,17,28,079/- made on account of additional undisclosed income.
2. Application of gross profit rate of 25% on unaccounted sales instead of 10.32%.
3. Rejection of telescoping of additions made in previous assessment years.
4. Levy of interest under sections 234A, 234B, 234C, and 234D of the Income Tax Act.
5. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?2,17,28,079/-:
The Revenue contended that the CIT(A) erred in deleting the addition of ?2,17,28,079/- made by the AO on account of profit on suppressed sales. The AO had determined the suppressed sales based on a search operation by the Excise Department, which found cash amounting to ?2,28,24,780/-. The AO applied a gross profit (GP) rate of 25% on the unaccounted sales to compute the additional income. The CIT(A) found that the AO's action of applying two different GP rates (10.32% for extrapolating turnover and 25% for computing net profit) was unjustified and deleted the addition. The Tribunal upheld the CIT(A)'s decision, stating that the income cannot exceed the cash found during the search, and the Revenue failed to provide evidence of suppressed sales beyond the amount determined by the Excise Department.

2. Application of Gross Profit Rate of 25%:
The AO applied a GP rate of 25% on the unaccounted sales, arguing that the assessee had not incurred additional expenses for generating the unaccounted turnover. The CIT(A) confirmed this, citing that the assessee must have evaded excise duty and sales tax, thus earning higher profits. The assessee argued that the AO's estimation was based on conjectures and should have applied the disclosed GP rate of 10.32%. The Tribunal found that the GP rate of 25% was reasonable given the lack of evidence for additional expenses and the nature of unaccounted sales.

3. Rejection of Telescoping of Additions:
The assessee claimed telescoping of additions made in previous assessment years (2007-08 to 2010-11) amounting to ?52,25,181/- with the income disclosed in the current assessment year. The CIT(A) rejected this claim, stating that the additions were made by estimating higher GP and there was no evidence of accumulation of such profit in the form of cash. The Tribunal upheld this decision, noting that accepting the claim would result in inaccurate particulars of income liable for penalty under section 271(1)(c).

4. Levy of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee contested the levy of interest under sections 234A, 234B, 234C, and 234D of the Income Tax Act. The Tribunal did not provide a detailed analysis on this issue, as it was ancillary to the primary issues of undisclosed income and profit estimation.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee also contested the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. Similar to the interest levy, the Tribunal did not delve deeply into this issue, focusing instead on the primary issues of income determination and GP rate application.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, holding that the income of the assessee from undisclosed sources cannot exceed the cash found during the search by the Excise Department. The Tribunal found the application of a 25% GP rate reasonable and upheld the rejection of telescoping of additions from previous years. The ancillary issues of interest levy and penalty initiation were not addressed in detail. The order was pronounced on 08/04/2022 at Ahmedabad.