Undisclosed income to be computed on basis of principle of Real Income: ITAT dismisses appeal filed by Revenue [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) held that undisclosed income is to be computed on the basis of the principle of real income and dismissed the appeal filed by the revenue.

In this case, the revenue has appealed against the order of the Commissioner of   Income Tax ( Appeals ) [ CIT ( A ) ].

The assessee, Yagneshkumar Gandhi, and proprietor of M/s. Astamangal are engaged in the business of manufacturing gold chain jewellery and retail and wholesale trading of gold jewellery. The assessee had filed its Income Tax Returns ( ITR ) for the assessment year ( AY ) 2020-21, declaring a total income of Rs. 1,77,48,320.

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A survey under Section 133A of the Income Tax Act, 1961 was conducted on the assessee and a jewellery group in Ahmedabad on 07-02-2020. During assessment proceedings, the assessing officer ( AO ) found impounded documents, including courier slips, Angadia slips, and image sheets, indicating unaccounted sales totalling Rs. 2,67,91,319.

Although the assessee had filed reply, the AO treated the amount as unaccounted income and added it to the total taxable income, raising a tax demand.

The assessee, who was aggrieved by the order, appealed before the CIT( A ). The assessee contended before the CIT( A ) that gross receipt cannot be treated as income and only net profit on such receipt is required to be treated.

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The CIT(A), by going through the submissions of the assessee, estimated the margin of profit at 6%.

The CIT( A ) partly allowed the appeal filed by the assessee and directed the AO to consider the confirmed addition of Rs. 16,07,480 out of the total addition of Rs. 2,67,91,319.

The ITAT was of the opinion that the revenue was unable to prove that the order passed by the CIT( A ) was erroneous. 

The bench observed that due to the absence of relevant evidence filed by the assessee, the CIT(A) considered the gross profits of the assessee relating to the previous two years and arrived at the estimation of 6% as the profit margin.

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The ITAT, comprising Narendra Prasad Sinha ( Accountant Member ) and T. R. Senthil Kumar ( Judicial Member ) dismissed the appeal filed by the revenue.

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