ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, SAMBALPUR, SAMBALPUR vs. SHREE SALASAR CASTINGS PRIVATE LIMITED, ROURKELA
Facts
The revenue filed appeals against the CIT(A)'s order concerning assessment years 2018-19 and 2019-20. A search revealed undisclosed sales by the assessee, which the AO treated as unexplained income. The CIT(A) held that only the estimated profit embedded in the sales, not the entire sales, could be added as income, applying specific GP rates.
Held
The Tribunal acknowledged the Gujarat High Court's precedent that only embedded profit, not total sales, can be added. While the CIT(A)'s application of GP rates was not fundamentally faulted, the Tribunal found them to be on the lower side for undisclosed sales.
Key Issues
Whether the entire undisclosed sales should be treated as unexplained income or only the profit embedded in such sales. Determination of the appropriate Gross Profit (GP) rate for undisclosed sales.
Sections Cited
Section 527 of 2015, Tax Appeal No. 528 of 2015
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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI GEORGE MATHAN & SHRI RAJESH KUMAR
आयकर अपीलीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK (THROUGH VIRTUAL HEARING) श्री जाजज माथन, न्याययक सदस्य एवं श्री राजेश कुमार, लेखा सदस्य के समक्ष । BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER आयकर अपील सं/ITA No.482/CTK/2024 आयकर अपील सं/ITA No.483/CTK/2024 (नििाारण वर्ा / Assessment Year :(2018-2019) (नििाारण वर्ा / Assessment Year :(2019-2020) ACIT, Central Circle, Vs Shree Salasar Castings Private Sambalpur Limited, Balanda, kalunga P S, Bramhani Tarang, Rourkela- 770031 PAN No. : AAFCS 7194 B (अपीलार्थी /Appellant) (प्रत्यर्थी / Respondent) .. नििााररती की ओर से /Assessee by : Shri. K.K. Agrawalla, AR राजस्व की ओर से /Revenue by : Shri Ashim Kumar Chakraborty, CIT-DR सुनवाई की तारीख / Date of Hearing : 25/09/2025 घोषणा की तारीख/Date of Pronouncement : 25/09/2025 आदेश / O R D E R Per Bench : These are two appeals filed by the revenue against the order of Ld.CIT(A), Bhubaneswar in Appeal number CIT(A), Bhubaneswar- 2/11287/2017-18 dated 26/09/2024 for the assessment years 2018-19 and 2019-20. 2. It was submitted by the Ld. CIT. DR that there was a search on the premises of Sunayana Metal Industries Ltd. on 03.12.2020. In the course of search, it came to the attention that the assessee has made undisclosed sales to the tune of Rs.04,10,56,022/- for the assessment year 2018-19 and Rs.07,91,72,315/- for the assessment 2019-20. The AO treated the entire sales as an unexplained income of the assessee. On Appeal the Ld. CIT (A) following the decisions of the Hon’ble Gujarat
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High Court in the case of Rameswar Textile Mills Limited in Appeal No. 527 of 2015 and Tax Appeal No. 528 of 2015 held that the entire sales cannot be added as the income of the assessee but the addition can be made only to the extent of the estimated profit embedded in the sales. It was the submission that the order of the Ld. CIT(A) is erroneous and that the entire sales must be treated as the unexplained income of the assessee. It was an alternate prayer by the Ld. CIT DR that the Ld.CIT (A) when estimating the income has adopted the GP for the assessment year 2018-19 at 1.64% which was regular GP disclosed by the assessee for the A.Y. 2018-19 and for the A.Y. 2019-20 the Ld. CIT(A) has adopted 1.47% which was the regular GP disclosed for the assessment Year 2019- 20. It was submission that obviously when the undisclosed sales have taken place the profit margin must be higher. It was the submission that at least 2% GP must be applied for both the assessment years. 3. In reply the Ld. AR on behalf of the assessee vehemently supported the order of the Ld. CIT (A). The findings of the Ld. CIT (A) that only 1.64% for the assessment year 2018-19 and 1.47% for the assessment year 2019-20 was liable to be applied. 4. We have considered the rival submissions. The facts in the present case clearly shows that admittedly the revenue has not been able to show any error in the order of the Ld. CIT(A) in applying the principles laid down by the Hon’ble Gujarat High Court in the case of Rameswar Textiles Mills Limited. However, in regard to the application of the GP, I am of the view that the GP applied is on the lower side, insofar as the regular GP cannot
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be applied in respect of the undisclosed sales. Obviously, there must be some margin of profit extra, otherwise no assessee would be doing such undisclosed business. This being so, I accept the claim of the Ld. CIT DR and The AO is directed to adopt the GP rate at 2% for both the assessment years in respect of the alleged undisclosed sales. 5. In the result, both appeals of the revenue are partly allowed for statistical purposes. Order dictated and pronounced in the open court on 25/09/2025. Sd/- Sd/- (राजेश कुमार) (जाजज माथन) (RAJESH KUMAR) (GEORGE MATHAN) लेखा सदस्य/ ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER ददनाांक Dated 25/09/2025 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतललपप अग्रेपर्त/Copy of the Order forwarded to : अपीलार्थी / The Appellant- 1. ACIT , Central Circle ,Sambalpur 2. प्रत्यर्थी / The Respondent- Shree Salasar Castings Private Limited, Balanda, kalunga P S, Bramhani Tarang, Rourkela- 770031 3. आयकर आयुक्त(अपील) / The CIT(A), आयकर आयुक्त / CIT 4. 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, कटक / DR, ITAT, Cuttack गार्ज फाईल / Guard file. 6. सत्यापपत प्रयत //True Copy// आदेशािुसार/ BY ORDER,
(Assistant Registrar) आयकर अपीलीय अधिकरण, कटक/ITAT, Cuttack
