Only Profit Element in Sale can be treated as income not the Entire sale consideration

Shri Nikhil Garg Vs ITO (ITAT Jaipur)

In this case The A.O. completed the assessment u/s 143(3) of the Income Tax Act, 1961 (in short, the Act) vide order dated 27.12.2011 after making lump sum addition of Rs. 80,000. Against the order of the A.O., no appeal was preferred by the assessee before the ld. CIT(A). During the course of audit of case, the Audit Party of I.T. Department observed a difference of Rs. 66,35,957/- between the total turnover declared in the Profit & Loss Account and Sales Tax Assessment Order, hence, order u/s 263 of the Act was passed on 19.02.2014 by the ld. CIT- (Admn) by setting aside the assessment order passed by the A.O. on 27.12.2011 with giving direction to the AO to make necessary verification of total sale/turnover from the books of accounts and other related documents and to verify the genuineness of the claim of loss of Rs.2,63,660/- under the head Income from Other Sources. Pursuant to the direction u/s 263, the AO completed the impugned reassessment u/s 143(3)/263 of the Act vide order dated 05.03.2015 by making addition of Rs.66,35,957 (difference in turnover) and disallowing the loss of Rs.2,63,659/-due to allegation of non-submission of details.

Held by ITAT

From the records, we have meticulously gone through the submissions made by both the parties and as per the records placed before us, it is true that the assessee could not prove the difference of Rs. 66,35,957/- on account of consignment sale because of the reasons mentioned in the above paras of our order. However, we are of the view that whether the purported sale is “consignment sale” or “ordinary sale” is immaterial at this stage as even if we treat the said sales undertaken by the assessee as ordinary sale instead of consignment sale then also the entire sales cannot be treated as an income of the assessee. In this regard, we draw strength from the decision in the case of CIT Vs President Industries (supra) wherein the Coordinate Bench had held that entire sales could not be added as income of assessee but addition could be made only to the extent of estimated profits embedded in sales. Further in the case of K Venkatesh Vs ITO (supra) wherein the Hon’ble High Court upheld the order of Tribunal by holding that it not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income tax. Thus, keeping in view the principles laid down by the Hon’ble High Court as well as the Coordinate Bench of the Tribunal, we are of the view that the entire sale consideration cannot be treated as income of the assessee but the addition could be made only to the extent of estimated profits embedded in sales, thus, in that eventuality, we deem it appropriate to restore the matter back to the file of the A.O. with a direction to make addition only to the extent of estimated profits embedded in sales of Rs. 66,35,957/- while keeping in view the GP declared by the assessee on the total sales for the year under consideration. Reasonable and adequate opportunity of hearing shall be provided to the assessee before deciding the matter afresh. We order accordingly.

FULL TEXT OF THE ORDER OF ITAT DELHI

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