What did the Tribunal hold?

The Tribunal held that the entire sales amount cannot be taxed as income; only the profit element can be taxed. It directed the AO to tax 8% of the sales as profit. The Tribunal also held that the gift addition could not be telescoped against the sales addition.

The Assessing Officer made additions of Rs. 10,68,839/- on account of alleged out-of-books purchases and GP margin on sales, and Rs. 50,000/- on account of a gift from the assessee's mother. The CIT(A) upheld these additions. The assessee appealed to the ITAT.

What were the issues?

Whether the entire amount of alleged unaccounted sales can be taxed as income, and whether a gift addition can be clubbed with sales addition.

Ashish Jain vs ITO | s.143(3) | ITAT Delhi 2015

Income Tax Appellate Tribunal, DELHI BENCH: ‘A’: NEW DELHI

Before: SHRI INTURI RAMA RAO & SMT. BEENA A. PILLAI

Hearing: 09.09.2015Pronounced: 23.09.2015

ORDER PER INTURI RAMA RAO, A.M.: This is an appeal filed by the assessee directed against the order of the CIT(A)-VIII, New Delhi dated 28.12.2011 for the assessment year 2007-08. The assessee raised the following grounds of appeal: i. That The Ld. Commissioner (Appeals) was not justified in upholding addition of Rs.7,72,664/- and Rs. 2,96,175/- on account of alleged out of books purchases and G.P margin on sales. The additions are unjustified, uncalled for and in any case exorbitant. ii. The order of The Ld. Commissioner (Appeals) suffers from serious infirmities in sustaining the additions of Rs.10,68,839/- as the income of the appellant which has been calculated as under:- Purchases (A) Rs. 14,45,120/- (1488212-43092) (1488212-Cheque Dishonored) Purchases disclosed in Books of Accounts (B) Rs. 6,72,456/- Out of Books Purchases (A-B) Rs. 7,72,664/- 2 Add: G.P. Margin on sales (27.71 %) (G.P. as declared by the assessee) Rs. 2,96,175/- Total Sales Rs. 10,68,839/- iii. The Ld. Commissioner (Appeals) has erred in law as well as on facts by sustaining total speculated sales of Rs. 10,68,839/- as net income(profit) of the appellant. He further, failed to appreciate that the entire sum received cannot, by any stretch of imagination be treated as income of the appellant. iv. The Ld. Commissioner (Appeals) further acted arbitrarily in confirming an addition of Rs.50,000/-on account of gift received by the appellant from his mother, notwithstanding the facts that the appellant had adduced sufficient evidence regarding the gift. v. The observations of the Ld. Commissioner. (Appeals) that findings of the. Assessing Officer were not rebutted nor" any evidence in support of creditworthiness of the donor and the genuineness of the transaction of the gift was furnished in the course of the Appellate Proceedings are untrue and incorrect. vi. The appellant was never accorded a fair and proper opportunity by the Ld. Commissioner (Appeals) to rebut the presumption of the Assessing Officer or to produce evidence to substantiate genuineness of gift or creditworthiness of the donor during the course of appellate proceedings. vii. The Ld. Commissioner (Appeals) was not justified in upholding the rejection of books of accounts by the Assessing Officer which is totally unjust, uncalled for and unwarranted. viii. The order of the Ld. Commissioner (Appeals) is bad in law, on facts and under the circumstances of the case. ix. The appellant craves leave to add, amend or alter any of the forgoing grounds of appeal

at the time of hearing.

2. The appellant is an individual engaged in the business of trading in confectionary and allied products. The return of income for the assessment year 2007-08 was filed on 12th November, 2007, declaring total income of Rs. 1,04,559/-. Against the said return of income, the assessment was completed under Section 143(3) of the Income-tax Act, 1961 (for short “the Act”) vide order dated 22nd December, 2009, at a total income of Rs. 12,23,398/-. While doing so, the Assessing Officer made addition of Rs. 10,68,839/- as unaccounted 3 sales and made addition on account of gift received from the mother at Rs. 50,000/-. The Assessing Officer, during the course of assessment proceedings, obtained information from M/s R.P. Traders from whom the assessee had made purchase. According to the Assessing Officer, the assessee made a total purchase of Rs. 14,45,120/- from M/s R.P. Traders. Out of these, an amount to the extent of Rs. 6,72,456/- were shown as purchases in the books of account maintained. Therefore, he drawn inference that the assessee made purchases of Rs. 7,72,664/- out of the books and he audited gross profit margin on sales @ 27.71% which had come to Rs. 10,68,839/-, which was treated as a sales made out of the books and brought the same to tax. He further made addition of Rs. 50,000/- for the gift received from mother on the ground that the gift deed filed is not registered and the gift was received in cash. Being aggrieved, an appeal was filed before the CIT(A), who vide order dated 28.12.2011 dismissed the same. Hence, the assessee is before us with the present appeal.

We heard the rival submissions and perused the material on record. We find from the assessment order that the Assessing Officer brought to tax the entire amount of the sales as undisclosed income. This, in our considered opinion, does not stand the test of the law. The Assessing Officer can only bring to tax the profit element of sales. Therefore, even assuming that there were unaccounted sales of Rs. 10,68,839/-, profit @ 8% normally adopted in the case of retail trade, can only be brought to tax. Hence, we direct the Assessing 4 Officer to make addition only @ 8% of Rs. 10,68,839/-. Accordingly, this ground of appeal

is disposed of.

4. As regards the amount relating to the addition of Rs. 50,000/-, in our considered opinion, the addition cannot be sustained even assuming that the gift is bogus. This item cannot be telescoped against the addition made on account of unaccounted sales. Therefore, this ground of appeal is allowed.

5. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. The decision is pronounced in the open court on 23rd September, 2015.

ASHISH JAIN,DELHI vs. ITO, NEW DELHI

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