Tribunal Confirms CIT(A) Decision: Only Net Profit Added to Income, Revenue Appeals Dismissed for 2007-08 & 2008-09.

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeals for assessment years 2007-08 and 2008-09. It ruled that only the net profit of Rs. 2,27,573 from M/s Swastik Polymers should be added to the assessee's income, not the gross turnover. The reassessment proceedings were deemed valid, and the assessee's cross objections were dismissed as not pressed.

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Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) for suppressed sales.
2. Validity of reassessment proceedings under section 143(3) read with section 147 of the Income Tax Act, 1961.
3. Clubbing of turnover of two proprietary concerns for the purpose of income tax assessment.

Detailed Analysis:

1. Deletion of Addition for Suppressed Sales:
The primary issue was whether the addition of Rs. 1,13,24,749/- as suppressed sales by the Assessing Officer (AO) was justified. The AO based this addition on information from the Central Excise Department, which indicated that the assessee had suppressed sales. The Excise Department had treated two proprietary concerns, M/s Subham Polymers and M/s Swastik Polymers, as a single entity and clubbed their turnovers. The assessee argued that the Excise Department's case was purely technical, focusing on the denial of SSI exemption by clubbing the turnovers, rather than alleging any unaccounted or suppressed sales.

The CIT(A) observed that the AO had incorrectly calculated the total turnover by using an exemption limit of Rs. 1.5 crores instead of Rs. 1 crore. Moreover, the CIT(A) noted that the AO had merged the turnovers of both concerns without considering the purchases and other expenses of M/s Swastik Polymers, which were genuine and not doubted by the Excise authorities. The CIT(A) concluded that only the net profit of Rs. 2,27,573/- from M/s Swastik Polymers should be added to the assessee's income, not the gross turnover.

The Tribunal upheld the CIT(A)'s decision, noting that the sale proceeds themselves cannot be treated as undisclosed income; rather, the net profit embedded in the sales should be considered. This was in line with the judgment of the Hon. Gujarat High Court in the case of CIT vs. President Industries.

2. Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings under section 143(3) read with section 147 of the Income Tax Act, 1961, as being wrong, invalid, and beyond the law. The CIT(A) dismissed this ground, and the Tribunal did not find it necessary to interfere with this part of the CIT(A)'s order.

3. Clubbing of Turnover of Two Proprietary Concerns:
The Excise Department had clubbed the turnovers of M/s Subham Polymers and M/s Swastik Polymers, treating them as a single entity to calculate excise duty. The AO followed this approach for income tax purposes, leading to the addition for suppressed sales. However, the CIT(A) and the Tribunal found this approach incorrect for income tax purposes. They held that the net profit, not the gross turnover, should be considered for addition to the assessee's income. The Tribunal upheld the CIT(A)'s decision to add only the net profit of Rs. 2,27,573/- from M/s Swastik Polymers to the assessee's income.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years 2007-08 and 2008-09, upholding the CIT(A)'s decision to add only the net profit from the sister concern to the assessee's income. The cross objections by the assessee were dismissed as not pressed. The order was pronounced in the open Court on 17th October, 2016.

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