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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
Per contra, the Learned Departmental Representative [Ld. DR] submitted that the assessee-company’s Managing Director has voluntarily offered income aggregating to Rs. 27,45,12,189/- for the AYs 2012-13 to 2018-19 under consideration. Accordingly, the Ld. AO has taxed the income in the respective assessment years. The Ld. DR also further submitted that out of the total undisclosed income of Rs. 52,12,93,979/-, only Rs.27,45,12,189/- is taxed by the Ld. AO where the Ld. AO has considered the unaccounted expenditure to the extent of Rs. 50% (approximately) of the unaccounted turnover. The Ld. DR pleaded that the order of the AO be upheld.
We have heard both the sides and perused the material available on record and the orders of the authorities below. The admitted facts are that the assessee has failed to disclose the full turnover of Rs. 110,17,21,680/- but has disclosed only Rs. 72,51,69,083/-. However, it is noticed that the turnover not 10 admitted as mentioned in page 9 of the paper book amounts to Rs. 52,12,93,979/- as per the sworn-in statement of the MD of the assessee-company dated 26/10/2017. We also find from page 8 of the paper book, the assessee has also given details project wise, assessment year wise unaccounted turnover in the books of accounts. We also find from page 11 of the paper book the assessee has declared the net profit and turnover as per the audited books of accounts while filing the return of income for the respective AY, which is extracted below:
Asst. Turnover Net Profit N.P % Year (Rs.) (Rs.) 2012-13 9,49,58,318 1,62,34,346 17.10% 2013-14 9,24,21,574 84,70,899 9.17% 2014-15 30,21,48,711 2,17,59,882 7.20% 2015-16 11,13,70,080 32,31,052 2.90% 2016-17 12,39,13,400 47,30,017 3.82% 2017-18 65,00,4000 26,60,302 4.09% 2018-19 8,70,07,900 42,22,440 4.85%
The average net profit on the declared profit on the accounted turnover for all the AYs ie., from 2012-13 to 2018-19 works out to 8.18%.
It is imperative to note that the estimated profits are embedded in the sales and hence treating the undisclosed sales/gross receipts as income is not valid.
11 10. In the instant case, there is no dispute on the unaccounted turnover. The grievance of the assessee is that the income/net profit embedded in unaccounted turnover must have been taxed and not the entire turnover. We find merit in the argument of the Ld. AR that the assessee has consistently declaring net profit on the accounted turnover ranging from 3% to 10%. It is also noted that the unaccounted turnover of the assessee works out to 33% of the total turnover both disclosed and undisclosed and hence the assessee has disclosed nearly 67% of the turnover in the books of accounts. The net profits declared for the various assessment years as per the above table was assessed and not disputed by the AO. Similarly, it is also admitted that the seized material contains unaccounted expenditure also. We find that the AO has merely relied on the sworn-in statement recorded by the Managing Director of the assessee-company admitting the total income of Rs. 27,45,12,189/- for various assessment years but has failed to give deduction for the unaccounted expenditure by the assessee for earning unaccounted income. Hon’ble Gujarat High Court in the case of CIT vs. President Industries [258 ITR 654] (Gujarat HC) has held that it cannot be the matter of an argument that the amount of sales by itself cannot represent the income of the assessee. It is the realization of excess over the 12 cost incurred that only forms part of the profit included in the configuration of sale. Similar view was taken in the case of CIT vs. Gurubachhan Singh J. Juneja [215 CTR 509] (Gujarat HC) and CIT vs. Sharada Real Estate (P) Ltd., [99 DTR 100] (MP-HC) and in the case of Jyotibhaichand Bhaichand Saraf & Sons (P) Ltd., vs. DCIT [139 ITD 10] the Coordinate Bench at Pune has confirmed the addition could only be made only to an extent of gross profit earned on an unaccounted/suppressed sales and not on the entire sales itself. Similar view was taken in the case of ACIT vs. M/s. Archana Trading Co., in & 352/Coch/2011, dated 28/02/2013 and also ACIT vs. Pahal Food [IT(SS)A No. 42/Hyd/2005, dated 30/09/2009] by ITAT, Hyderabad. In the case of CIT vs. Willamson Financial Services reported in [2007] 165 Taxman 638 (SC) the Hon’ble Supreme Court has observed as follows in Para 29:
………Under the income tax Act the tax is on the income and not on gross receipts. It is also important to bear in mind that U/s. 4 the levy is on „total income‟ of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is to chargeable to tax under the Income Tax Act is the profit and gains of a year. What is chargeable to tax under the Income Tax Act is not gross receipts but income…..
13 Respectfully following the ratio laid in the above decisions, we are of the opinion that the entire unaccounted turnover cannot be brought to tax or the turnover admitted at the time of search operations cannot be brought to tax and as such there can only be a reasonable estimation of net profit on the unaccounted turnover. In the instant case, since the assessee has declared an average net profit of 8.18% for the AYs 2012-13 to 2018-19, we are of the considered view that the same net profit percentage shall be adopted on the unaccounted turnover of the assessee for the various assessment years. We are therefore inclined to set- aside the orders of the Ld. Revenue Authorities and the grounds raised by the assessee are allowed.
In the result, all the six appeals of the assessee are allowed.
Pronounced in the open Court on the 30th August, 2022.