Profit Element in Unexplained Sales is to be treated under undisclosed Income: ITAT [Read Order]

The Rajkot Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the profit element in unexplained sales is to be treated under undisclosed income under the Income Tax Act, 1961. The ITAT observed that CIT(A) has failed to give the benefit of the income surrendered by the assessee voluntarily against the addition confirmed by him on account of unaccounted sales. 

Shri Mehul Ranpura appeared for the assessee and Shri Shramdeep Sinha appeared for the revenue.

The Revenue challenged the order passed by the Commissioner of Income Tax( Appeals )-11, Rajkot [CIT(A)]under section 250(6) of the Income Tax Act, 1961 ( "the Act" ) about the Asst.Year2019-20.  The assessee, Conor Granito P Ltd. also filed its CO against the same order of the CIT(A). 

The Registry has noted that the CO filed by the assessee before the Tribunal is time-barred by 15 days.  Though the assessee has not filed any delay condonation application, the counsel for the assessee submitted that due to some administrative reasons, the assessee could not file the CO in time.  It was accordingly prayed that the delay being very small, the same may be condoned in the larger interest of justice, more so, when the assessee has a very good case on hand, for adjudicating the issue on merit.

Looking to the quantum of the delay being just 15 days, taking a lenient view in the interest of justice, we condone the delay in filing the CO, and proceed to adjudicate the same on merits.

It was stated that the solitary issue in the appeal of the Revenue related to the deletion by the CIT(A) of the addition made to the income of the assessee by the AO on account of  undisclosed sales , restricting the addition to the net profit element in the same.  While in the CO the assessee is challenging the restriction of addition by the CIT(A) seeking in turn deletion of the entire addition made by the AO of unaccounted sales.

It was pointed out that during a search at the residential premises of the director of the assessee-company, various incriminating materials by way of WhatsApp messages/images were discovered along with material from the mobile phone of the director of the assessee-company, Shri Dhirendra Kavar and on analysis of the same, it was discovered that the assessee had made out of books sales which during the impugned year amounted to Rs.2,35,42,980/-.  The AO added entire undisclosed sales to the income of the assessee. The CIT(A), however, restricted the same to the profit element embedded therein estimated at the rate of 8% of the sales. 

During the hearing, it was pointed out that the CIT(A) had relied on various judicial decisions including that of the jurisdictional High Court while restricting the addition made on account unaccounted sales to the net profit element embedded therein. 

A two-member bench comprising Smt Annapurna Gupta, Accountant Member and Smt Madhumita Roy, Judicial Member viewed that there is no merit in the contentions of the DR that the CIT(A) ought to have applied a net profit of 12.5% in the present case. 

The Tribunal observed that the CIT(A) has failed to give the benefit of the income surrendered by the assessee voluntarily against the addition confirmed by him on account of unaccounted sales.  This fact has been noted by the AO in his assessment order, which has been pointed out to us during the hearing.  

The ITAT directed the AO to grant the assessee the benefit of the income surrendered of Rs.15 lakhs against the addition confirmed by the CIT(A) and allowed the appeal of the assessee. 

To Read the full text of the Order CLICK HERE

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