Unaccounted purchases cannot be fully treated as income under Section 69A; only profit element taxable at 8% of sales

ITAT Visakhapatnam ruled on unexplained cash purchases under Section 69A. Revenue contended that unaccounted purchases should be treated as unexplained cash income due to inadequate source explanation. ITAT held that entire unaccounted purchases cannot be deemed assessee's income; only profit element should be considered. Tribunal allowed 8% of sales as taxable income instead of treating full purchase amount as unexplained cash. AO directed to compute income and tax accordingly.

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Issues involved:
The appeal by Revenue against the order of Ld. Commissioner of Income Tax (Appeals) regarding addition made u/s 69A of the Income Tax Act, 1961 based on unexplained cash purchases.

Summary:

Issue 1: Addition u/s 69A based on unexplained cash purchases

The case involved the assessee engaged in Trading in Electronic Goods, where a search operation revealed substantial cash sales to the assessee by another company. The Ld. AO treated the cash purchases as unexplained money u/s 69A and assessed the income accordingly. The assessee contended that only the profit element should be taxed, not the entire cash purchases. The Ld. CIT(A) deleted the entire addition, leading to the Revenue's appeal.

Issue 2: Arguments and findings

The Revenue argued that the addition was based on authentic information from the investigation unit, supported by statements of employees and directors of the supplying company. The Departmental Representative emphasized the assessee's acceptance of similar out-of-books sales in previous and subsequent years. However, the Authorized Representative supported the CIT(A)'s decision.

Issue 3: Tribunal's decision

After considering both sides and relevant legal precedents, the Tribunal held that only the profit element from the cash sales should be taxed, not the entire amount. Referring to various court decisions, the Tribunal directed the Ld. AO to tax 8% of the sales as the assessee's income. The appeal by Revenue was partly allowed based on this conclusion.

This judgment highlights the importance of distinguishing between gross receipts and taxable income, emphasizing the need to tax only the profit element in cases of unexplained cash purchases. The decision serves as a reminder of the legal principles governing the taxation of undisclosed income in such scenarios.

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