Case Law Details

Case Name : CIT Vs Shri Hariram Bhambhani (Bombay High Court)
Appeal Number : Income Tax Appeal No. 313 of 2013
Date of Judgement/Order : 04/02/2015
Related Assessment Year :
Courts : All High Courts (4674) Bombay High Court (868)

Issue- Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the order of the CIT(A) in which he had directed the Assessing Officer to tax 4% net profit on unaccounted sales of Rs.35 lakhs even though no evidence of unaccounted purchases/ expenses against such unaccounted sales was detected at the time of survey?

On 21st September, 2006, there was a survey operation under Section 133A of the Act on the Respondent­ Assessee. During the course of the survey, it was noticed that the Respondent­ Assessee has not accounted some of the sales in the total turnover. In the statement recorded at the time of survey, the Director of Respondent­ Assessee declared a sum of Rs.35 lakhs should be offered to tax. However, thereafter, Respondent­ Assessee explained the statement as follows:

“ Please refer to question No.11 in the statement given by the director wherein it was declared that the sum of Rs.35 lakhs would be offered to tax for A. Y. 2005­-06. However, bill amounting to Rs.14,97,970/­ was raised on 31.3.2006 on M/s. Global Services Middle East for supply of provision time to time on Vesser “MV Pooja 1 & MV Stephanie. Copy of the Sale invoice for same made to M/s. Global Services Middle East for Rs.14,97,970 is enclosed herewith.

Also sum of Rs.20,00,000 was towards sales in M/s. Global (India) Hospitality Services Pvt. Ltd. and was wrongly mentioned in declaration given by the director as turnover belonging to Royal Marine Co.

Further, we wish to add that the statement was made by Mr. Hariram Bhambhani who is a matriculate in vernacular language and is not aware of the intricacies and implications of the Income Tax Act and Rules and statement made by him.”

The Respondent ­Assessee did not accept the Appellant’s above explanation, seeking to reconcile the statement made during the course of survey and facts actually existing. Accordingly, the entire amount  of Rs.35 lakhs was brought to tax under the head ‘income from undisclosed sale’.

Being aggrieved, Respondent­ Assessee filed an Appeal before the CIT(A). In its order, the CIT(A) recorded that during the course of survey, no unaccounted invoices were impounded. Although there  was unaccounted sale bills which were not recorded in the books of account on the date of survey, no document was impounded. However, later in its return filed with the Revenue, it declared turn over at Rs.3.27 Crores, showing a net profit of Rs.36.76 lakhs. The CIT(A) relied upon its decision to hold that the Assessing Officer cannot add the amount of Rs.35 lakhs only on the statement made without considering the surrounding circumstances   and   evidence   to   uphold     the   addition.     In   the  circumstances, the CIT(A) held that in the facts of the case, that only 4%  being the profit earned on sales of Rs.35 lakhs can be added to net profit  of   the   applicant.   Therefore,   only   Rs.1.40   lakhs   was   the   profit   on  unaccounted sales which could be added. Thus, the balance addition of  Rs.33.63 lakhs was deleted.

On further Appeal, the Tribunal by the impugned order held  that   the   entire   sales   which   are   unaccounted   cannot   be   undisclosed  income of the assessee, particularly as the purchase had been accounted  for.   It   was   held   that   only   net   profit   which   would   arise   on   such  unaccounted sales can rightly be taken as the amount which could be  added to the Respondent ­Assessee’s income for the purpose of tax.

The grievance of the Revenue is that Section 69C of the Act is to be invoked and entire amount of undisclosed sales has to be brought to tax.     We  are   unable  to   appreciate  how  Section  69C   of  the   Act which speaks of unexplained expenditure is all at relevant for this appeal.   We are not concerned with any unexplained expenditure in this case.

In any view of the matter, the CIT(A) and Tribunal have came  to the concurrent finding that the purchases have been recorded and only  some of   the sales are unaccounted. Thus, in the above view, both the  authorities held that it is 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. The view  taken by the authorities is a reasonable and a possible view. Thus, no  substantial question of law arises for our consideration.

Read ITAT Mumbai Decision on Above at the following link :-

Entire unaccounted sales cannot be undisclosed income of assessee if Purchase is duly accounted

Download Judgment/Order

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