TaxTMI 
TaxTMI 
2026 (9) TMI 594
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....ever, in so far as the additions on account of alleged suppressed sales are concerned, one of the principal alternative contentions urged before us is that even if, for the sake of argument, the amounts reflected in the impounded digital data are taken to represent sales or business receipts not recorded in the regular books of account, the entire amount of such sales cannot be treated as income of the assessee; at best, what can be brought to tax is the profit element embedded in such turnover, having regard to the nature of the assessee's business and its demonstrated profit margins in the preceding and succeeding years. 2. The relevant facts are that the assessee is a partnership firm engaged in the business of production, trading and export of buffalo meat and various products and by-products derived from buffalo after slaughter. Apart from export of meat, the assessee also carries on local sales of meat, offals and other by-products such as horns, hooves and tallow. For the year under consideration, the assessee had filed its return of income declaring total income of Rs. 7,95,49,735. The case was originally selected for scrutiny and assessment under section 143(3) read wit....
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....ed details of bank and cash receipts pertaining to transactions with Al-Shakir Foods, the Assessing Officer worked out alleged cash receipts of Rs. 45,93,700 in relation to sale of offals from the Solapur plant. Thirdly, from the Excel sheet captioned "Copy of All Parties Payment details.xlsx", containing details of receipts from various parties in relation to sale of horns, the Assessing Officer determined alleged unaccounted cash sales of Rs. 25,11,630. Lastly, on the basis of the sheet captioned "Extranal Sale" forming part of "General File.xlsx", cash receipts of Rs. 1,60,76,028 were initially noticed; however, after accepting that Rs. 25,01,668 thereof overlapped with the cash sales considered under the other head, the balance amount of Rs. 1,35,74,360 was separately treated as suppressed sales. Thus, the aggregate amount brought to tax under section 28 on account of alleged sales outside the regular books was Rs. 5,01,11,790, which can be summarised as under:- 4.1. Apart from the above, the Assessing Officer also made a separate disallowance of Rs. 23,61,778 under section 40A(3), thereby determining the total income at Rs. 13,20,23,303 as against the income originally asse....
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....ood corroborated from the regular books, the cash component appearing therein could not be discarded merely by describing the sheets as projections. The affidavits filed by the employees, consultant and certain parties were also not accepted as sufficient to displace what, according to the Assessing Officer, was the contemporaneous documentary record. 7. There is, however, another significant facet of the assessment which assumes importance for the alternative contention raised before us. While rejecting the assessee's explanation and treating the impugned receipts as suppressed sales, the Assessing Officer has not proceeded on the footing that the assessee had made any corresponding unaccounted purchases or that the goods allegedly sold outside the books had emanated from an independently unexplained source. On the contrary, while examining the assessee's quantitative reconciliation and procurement-production-sales mapping, the Assessing Officer has specifically observed that the purchases were not in dispute and that, according to him, the assessee had suppressed the rates at which the offals and other by-products were sold and thereby suppressed its total sales and profits. S....
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.... by the Assessing Officer suffers from a more fundamental infirmity. According to him, even if the entire case of the Revenue regarding suppressed sales is accepted for the limited purpose of adjudicating the alternative ground, the sum of Rs. 5,01,11,790 represents, at the highest, additional turnover of the assessee's existing business and cannot, by itself, represent its income. He submitted that the Assessing Officer has taxed the gross receipts as though the assessee had earned a profit of 100% thereon, notwithstanding his own finding that the purchases were not disputed and that the alleged suppression arose because the assessee had recorded lower sale rates/margins in its regular books. 10. Learned counsel further drew our attention to the statement of gross-profit and net-profit ratios of the assessee for Financial Years 2016-17 to 2021-22 placed in the paper book and submitted that the profitability of the assessee has remained consistently modest, having regard to the peculiar nature and volume of its business. According to the assessee, the average net-profit ratio for the aforesaid six-year period works out to approximately 1.5%. It was thus submitted that, without p....
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....ceed, for the limited purpose of adjudicating this ground, on the premise adopted by the authorities below that the impugned amounts represent sales/business receipts which were not fully recorded in the regular books, a distinct and anterior question still survives, namely, whether the entire amount of such suppressed sales constitutes taxable business income or whether it is only the profit element embedded therein which can legitimately be brought to tax. The distinction is material because a receipt arising in the course of business does not, merely by reason of its non-recording in the regular books, shed its character as turnover and automatically assume the character of income in its entirety. 13. In examining this aspect, what is particularly significant is the very foundation on which the Assessing Officer has proceeded. While dealing with the Sangamner transactions, the Assessing Officer has categorically observed that the purchases are not in dispute and that his case is that the assessee suppressed the rates at which the offals were sold, thereby suppressing the total sales and reducing its profits. The same thread runs through the other additions. In the case of Al-....
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....1,35,74,360 reflected in the "Extranal Sale" sheet, has again recorded that purchases were not in dispute and that the assessee had shown lower profit margins on sales made to various parties, thereby reducing its net profit and consequently the income offered to tax. Thus, once the Revenue's own analysis treats the impugned amounts as suppressed sales arising from the same trading/manufacturing activity and attributes the escapement of income to suppression of the sale margin, there is an inherent incongruity in thereafter bringing the entire sale value to tax as income under section 28. The consequence has to remain consistent with the premise: if what has escaped the books is turnover of the existing business, what has escaped assessment is the profit attributable to such turnover, unless there is separate material showing unexplained investment or expenditure warranting an independent addition under the applicable provisions of the Act. 15.1. This approach is also consonant with the principle recognised in Tribunal decisions that suppressed turnover cannot, without more, be treated as profit in its entirety and that the profit component requires reasonable estimation on the ....
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....e relevance. The impugned receipts, according to the Assessing Officer, were not merely omitted sales simpliciter, but in certain instances represented sale consideration allegedly realised over and above the amount reflected in the regular invoices. In the case of Al-Shakir Foods, the Assessing Officer has referred to a transaction involving 8,329 kgs of offals where, according to him, the actual value was Rs. 26,96,200 whereas only Rs. 9,00,000 was reflected in the invoice, with the balance consideration being realised outside the books. Likewise, in relation to horn sales, the Assessing Officer has referred to a transaction where the alleged actual rate was approximately Rs. 102 per kg as against approximately Rs. 63 per kg reflected through the invoice. These instances, if the Revenue's factual premise is accepted for the limited purpose of estimation, indicate that the suppressed component represented incremental realisation from goods forming part of the assessee's regular business stream. Such incremental turnover would not necessarily bear in the same proportion the entire common and establishment expenditure already absorbed in the accounted business. Thus, while there is ....
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....enue's inference that the impugned amounts represent suppressed business turnover, the addition has to be confined to the income reasonably attributable thereto. The grounds relating to the individual additions of suppressed sales are accordingly disposed of in the aforesaid terms. 21. We now take up the separate disallowance of Rs. 23,61,778 under section 40A(3). The Assessing Officer, on examination of the Tally data, had initially identified cash transactions aggregating to a substantially larger amount under several heads. After considering the assessee's explanation, he himself accepted that several of these transactions did not attract section 40A(3), inter alia, because they represented advances appearing in the balance sheet, purchases of livestock falling within Rule 6DD, ante-mortem examination fees paid to the Government authorities, payments not claimed as expenditure in the profit and loss account, transportation payments within the higher statutory threshold and certain payments to Government authorities. The controversy was ultimately confined to an aggregate amount of Rs. 23,61,778 comprising the following items: 21.1. The Assessing Officer disallowed the a....
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.... and payment-wise details. We also find that the learned CIT(A), while sustaining the disallowance, has not undertaken such payment-wise examination but has substantially proceeded on the reasoning adopted by the Assessing Officer. 24. In these circumstances, we do not consider it appropriate either to sustain the entire disallowance merely on the basis of the aggregate ledger figures or to delete it without verification of the underlying payments. We, therefore, restore this limited issue to the file of the Assessing Officer with a direction to examine the payment-wise/person-wise details, vouchers and other supporting records furnished by the assessee. If, upon such verification, it is found that an individual payment or aggregate of payments to the same person on the same day did not exceed the monetary limit prescribed under section 40A(3), no disallowance shall be made merely because the aggregate debit under the relevant ledger account during the year exceeded the prescribed amount. Likewise, wherever the assessee claims that a payment falls within any of the exceptions contained in Rule 6DD, the same shall be examined on the basis of the relevant supporting material. The ....