Entire Unaccounted Sales Cannot Be Treated as Income, Only Profit Element Taxable: ITAT Grants Relief to Buffalo Meat Exporter [Read Order]
The Revenue did not rebut the assessee’s contention that only the net profit element could have been added to the income of the assessee.
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) recently granted relief to a buffalo meat exporter, holding that where a search by the income tax department uncovers unaccounted sales, only the net profit in those sales can be added to the income of the assessee for tax purposes, and not the entire sales amount itself.
The appellant-assessee Al-Aali Exports Pvt. Ltd., is a Delhi-based company engaged in the business of buffalo meat products. Al-Aalo was subjected to a search by the income tax department on January 3, 2023.
Following the search, the Revenue framed assessments under Section143(3) of the Income Tax Act, 1961 for AY 2022-23 and AY 2023-24, adding the entire detected unaccounted sales - ₹26,92,38,738 and ₹3,36,59,980 respectively, to the assessee's income. The additions were confirmed by the Commissioner of Income Tax (Appeals)-30, New Delhi in its orders, thus leading to the present appeals.
The facts show that the Revenue's search had yielded actual evidence of unaccounted sales of ₹24,11,786 for AY 2022-23 and ₹2,33,39,943 for AY 2023-24. The assessee's counsel contended before the Tribunal that the additions for these two years were grounded in evidence gathered during the search.
However, the counsel brought to the attention of ITAT that only the net profit element of those unaccounted sales could properly be brought to tax - the assessee's books reflected profit at 2.64% for AY 2022-23 and profit at 1.78% for AY 2023-24. This factual position went entirely unrebutted by the Revenue.
The Bench of Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member) noted that the net profit rates per the assessee's own books stood at 2.64% and 1.78%, and that the Revenue had offered no rebuttal. Accordingly, the ITAT Bench estimated income at 3% on the actually detected unaccounted sales for both years, confining the addition to that figure rather than the entire unaccounted sales amounts.
Importantly, the Tribunal added a rider that this estimation shall not be treated as a precedent, while partly allowing the appeals.
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