Profit element in suppressed sales alone is taxable; entire undisclosed sale proceeds cannot be treated as income.

Undisclosed sale proceeds were not taxable as the whole of income where there was no finding of any undisclosed investment in the goods sold outside the books; only the profit element embedded in the suppressed sales could be brought to tax. On that footing, the High Court held that no referable question of law arose from the Tribunal's order, and the reference application was rightly rejected.

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Issues: Whether the entire amount of undisclosed sales could be treated as income, or only the profit element embedded in such sales, and whether any referable question of law arose from the Tribunal's order.

Analysis: In the absence of any finding that the assessee had made undisclosed investment for acquiring the goods sold outside the books, the sale proceeds represented only the realisation of consideration and not the whole of income. Only the excess over cost, namely the profit embedded in the suppressed sales, could be brought to tax. On that basis, no question of law arose requiring a reference under section 256 of the Income-tax Act, 1961.

Conclusion: The entire undisclosed sale proceeds were not liable to be treated as income, and the application for reference was rightly rejected.

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