MAHENDRA KUMAR PODDAR vs. C I T and ANR

PDF · subscribers
ITA/77/2006HC RajasthanRJHC02039179200525 April 20173 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that when dealing with unaccounted sales, a corresponding allowance for expenses should be made. The Court found that expenses should be allowed at 25% of the unaccounted sales. This decision was made in the interest of justice, modifying the Tribunal's stance of disallowing any expense deduction. The reasoning appears to be that while the sales are unaccounted, the generation of such sales inherently involves incurring expenses. The ratio decidendi is that a portion of expenses must be allowed against unaccounted sales to arrive at a taxable income. The issue is answered in favor of the assessee and against the Department. The appeal is allowed.

What were the facts?

The appellant, Shri Mahendra Kumar Poddar, is challenging an order of the Income Tax Appellate Tribunal (ITAT) that allowed the Department's appeal. The ITAT's decision reversed an order passed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The dispute centers around the assessment of income derived from unaccounted sales. During a search, sales vouchers were seized, but no corresponding purchase vouchers were found. Computer data indicated an investment of Rs. 1.70 lacs, against which the assessee surrendered income for AY 1994-95. The peak investment was estimated at Rs. 2.00 lacs, with the assessee claiming funds were received from past years. The CIT(A) had held no investment was required in the year under appeal.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that when gross profit is applied on unaccounted sales of Rs. 40,59,186/-, no deduction for expenses is allowable? (Question of law) 2. Whether, gross profit on sales can be taxed directly without allowing deduction of expenses, while assessing the income under the Income Tax Act, 1961 as has been done by the Tribunal while reversing the order passed by the CIT (A)? (Question of mixed law and fact) Assessee's Contention: The Tribunal overlooked that expenses are incurred for turnover, and therefore, a deduction for expenses should be allowed, suggesting 40% deduction in regular assessment. Revenue's Contention: The revenue opposed the assessee's contention and supported the order of the Tribunal. The judgment does not record specific authorities, circulars, or precedents relied upon by either side.

Which sections of the Income-tax Act were involved?

Section 132(5)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 77 / 2006 Shri Mahendra Kumar Poddar 11th Misha Market, Agra Road, Jaipur. ----Appellant Versus 1. The Commissioner of Income Tax, NCRB, Building Statue Circle, Jaipur 2. The DCIT, Investigating Circle-3, Jaipur ----Respondents _____________________________________________________ For Appellant(s) : Mr. P.K. Kasliwal For Respondent(s) : Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS

Judgment 25/04/2017

1.

By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the Department.

2.

This Court while admitting the appeal has framed the following substantial question of law: (I) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that when gross profit is applied on unaccounted sales of Rs. 4059186/-, no deduction for expenses is allowance? (ii) Whether, gross profit on sales can be taxed directly without allowing deduction of expenses, while assessing the income under the Income Tax Act, 1961 as has been done by the Tribunal while reversing the order passed by the CIT (A)?

(2 of 3) [ITA-77/2006]

3.

Counsel for the appellant mainly contended that the Tribunal while considering the case of the appellant has lost sight of the fact that the unaccounted amount which has not been disclosed which is incurred expenses for turnover. In that view of the matter, though in the regular assessment, he has claimed 40% expenses deduction may be allowed.

4.

Counsel for the respondent Mr. Mathur has opposed the contention and supported the order of the Tribunal.

4.

1 The Tribunal while considering the case has observed as under: “We have heard the rival submissions and perused the materials available on record. This was the third year of the assessees’ business in motor parts and initial investment should be considered to have been made in earlier years. The AO made addition of Rs. 5.70 lacs only on estimate basis. The Id. CIT (A) held at pages 5 of his order that there were more than 250 sales vouchers which were seized and no purchase vouchers were found during the course of search. The seized computer floppy were indicating only an investment of Rs. 1.70 lacs against which the assessee surrendered the income for assessment year 1994-95 at Rs. 2,09,250/-. The Id. AR submitted that the assessee was purchasing the goods on credit as per individual orders from the customers. No stock of motor parts were kept or found during the course of search. The peak investment estimated in the order dated 2-3-1995 under section 132(5) was Rs. 2.00 lacs and the assessee had made investment out of the funds received during past two years. Therefore, we are of the opinion that the Id. CIT (A) had rightly held that no investment was required during the year under appeal. Thus, the order of the Id. CIT (A) is sustained for the reasons mentioned in his order.”

5.

We have heard the learned counsel for the parties.

6.

Taking into consideration that when amount is unaccounted sales, the corresponding expenses will require to be only 25%.

7.

In that view of the matter, in the interest of justice,

(3 of 3) [ITA-77/2006] expenses will be required to be allowed only 25%.

8.

The issue is answered in favour of the assessee and against the Department.

The appeal stands allowed.

(VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. /bm gandhi 173

More judgments on Section 132(5)

All 45 judgments and leading authorities on Section 132(5) →

Recent GST High Court judgments

Search GST case law →