NAYEEMUR REHAMAN,BANGALORE vs. THE INCOME TAX OFFICER WARD-6(3)(1), BANGALORE

This appeal is filed by the assessee which is directed against the order of ld. CIT(A)-6, Bangalore dated 10.12.2018 for Assessment Year 2015-16.

The grounds raised

It was submitted by ld. AR of assessee that in para no. 4.3.1 of his order, this contention was raised by the assessee before ld. CIT(A) was noted by him that as per the assessee, the entire undisclosed export sales of Rs. 25,27,545/- cannot be treated as assessee’s income and only GP at 15% should be added. He submitted that in spite of this, ld. CIT(A) has confirmed the entire addition. He placed reliance on the judgment of Hon’ble Bombay High Court rendered in the case of CIT Vs. Shri Hariram Bhambhani in of 2013 dated 04.02.2015. He submitted that the copy of this judgment is available in the paper book. He drawn my attention to page no. 3 of this judgment of Hon’ble Bombay High Court and pointed out that it was held by Hon’ble Bombay High Court that the finding of ld. CIT(A) and the Tribunal that only the profit attributable on the total unrecorded sales consideration alone can be subject to income tax is a reasonable and possible view and hence, no substantial question of law arises for consideration before the Hon’ble Bombay High Court. He submitted that as per this judgment of Hon’ble Bombay High Court, only GP element of unaccounted sales should be added and not entire unaccounted sales. At this juncture, this was the query of the bench that as per para no. 4.3.1 of the order of ld. CIT(A), this was the submission of the assessee before ld. CIT(A) that by mistake, the accountant of the assessee has recorded only Rs. 46,06,720/- export sales as against actual total export sales of Rs. 71,34,265/-. The bench pointed out that this is not the case of the assessee that any purchase or other expenses was also not accounted for in full and when the purchases and expenses are accounted for in full, the entire sales proceeds has to be added back which was not accounted for by the assessee. In reply, it was submitted by ld. AR of assessee that some expenses were also not fully accounted for by the assessee but in this regard, no details or evidence could be brought on record and he simply Page 3 of 4 filed the statement of purchase bills as per which there are purchase from 10 parties as per various purchase bills with the total amount of Rs. 23,31,630/- but the debit in the P&L account on account of purchase is only of Rs. 19,67,266/- as per P&L account available on record and hence, purchases to the extent of Rs. 364,364/- remain not accounted for.

I have considered the rival submissions. As per above discussion, it is seen that in the facts of the present case, sales were less accounted for by the assessee because of an inadvertent mistake of the accountant and this is the submission of the assessee before the tribunal that some purchase of Rs. 364,364/- also remained unaccounted for. But no such claim appears to have been made before the lower authorities. At least, there is no finding of lower authorities in this regard. Before tribunal also, an unsigned statement of Purchase bills showing purchases of Rs. 23,31,630/- is submitted. No quantitative detail of purchase and sale is submitted showing that quantity of purchase accounted for is less than the quantity of total sales including sales accounted for & not accounted for and hence, more purchase has to be considered when unaccounted sale is being considered. As against this purchase of Rs. 23,31,630/- as per this unsigned statement of Purchase bills, the purchase as per P & L Account is only Rs. 19,67,266/-. If this unsigned statement of Purchase bills is accepted as correct, its difference with the amount debited in P L Account as purchases is Rs. 364,364/- but in the absence of quantitative details, it cannot be concluded that some purchases are not accounted for against total actual exports of Rs. 71,34,265/-. But in my considered opinion, in the interest of justice, this aspect should be examined by the AO and if the assessee establishes by bringing quantitative details that the quantity of purchases already debited to P & L Account is not sufficient for the quantity of sales credited to P & L Account and quantity of sales not accounted for than extra quantity of purchase to achieve the total turnover (Accounted and unaccounted both) shall be considered as deduction subject to this condition that the assessee establishes this also that payment for such purchases were made out of explained sources because if the payment is made out of unexplained sources than section 69c will become applicable and deduction for such Page 4 of 4 purchases will not be allowable. Hence, I set aside the order of CIT (A) and restore the matter back to AO for fresh decision with regard to allowability of deduction on account of purchases claimed before the tribunal as not accounted for in the light of above discussion after allowing reasonable opportunity of being heard. I would like to observe that this difference of Rs. 364,364/- is only 14.42% approx. of unaccounted export sales of Rs. 25,27,545/- but the assessee is claiming extra deduction of 85% of this unaccounted export sales by claiming that only 15% of this unaccounted export sales should be brought to tax. Hence, even if the assessee succeeds on the aspect of allowing extra deduction for purchases not accounted for as discussed above, only such extra deduction as found allowable in the light of above discussion should be allowed and the claim of the assessee to tax only Gross Profit @ 15% is rejected because there is no such claim that any other expense except purchase of Rs. 364,364/- remained unaccounted. I order accordingly.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.