2009 (7) TMI 20 - HC - Income Tax

Unaccounted Sale Addition - Assessing Officer asked the assessee to explain why addition be not made on account of unaccounted to the returned income revealed from the documents seized during the survey conducted on 6.11.1998 for the assessment year 1999-2000. The explanation furnished by the assessee was not accepted by the Assisting Officer and addition of Rs.1, 22, 604/-. It was observed that the assessee had made investment but the same has not been explained and accounts were not produced. 60% of the peak investment was treated as income - On appeal the Commissioner of Income-tax partly set aside the addition. It was also held that instead of taking 60 peak investment as income the amount of the profits assessed on the basis of commission at the rate of 5% of the total sale should be added. The Tribunal upheld the said view HC decision in the matter of CIT vs. President Industries 2008 -TMI - 12381 - GUJARAT High Court Appeal of the assessee dismissed.

Summary

Issues:
1. Interpretation of the judgment of the Gujrat High Court in a similar case.
2. Treatment of unaccounted sales and investment in the assessment.
3. Justification of assessing commission income at 5%.

Analysis:

Issue 1:
The appeal involved questioning the legal correctness of upholding the decision based on the Gujrat High Court judgment in a different case. The Tribunal found that the assessee had sold apples on a commission basis to a specific entity, as revealed by documents seized during a survey. The Tribunal reasoned that since the documents confirmed the commission-based sales, it was appropriate to assess the commission income on the undisclosed turnover. The Tribunal also considered the commission rate of 5% as reasonable based on precedents like the case of Shri Sanjay Chhabra. The High Court concurred with the Tribunal's findings, emphasizing that the assessment of income from seized documents should be based on the facts of each case, and in this instance, the commission income was justifiable.

Issue 2:
Regarding the treatment of unaccounted sales and investment in the assessment, the Assessing Officer had initially added a significant amount to the income due to unexplained investments and unaccounted sales. The Commissioner of Income-tax later modified the addition, considering the profits assessed based on a 5% commission rate on total sales as more appropriate. The Tribunal upheld this view, emphasizing that the assessee's sales were on a commission basis, and therefore, the commission income should be added to the disclosed income. The High Court affirmed this approach, stating that the CIT (A) had correctly assessed the income as commission earned from sales, rather than treating the investment as income.

Issue 3:
The final issue revolved around the justification of assessing the commission income at a rate of 5%. The revenue contended that the investment itself should have been treated as income, not the commission. However, the High Court held that the CIT (A)'s decision regarding the treatment of income was a factual finding. The Court emphasized that assessments based on seized documents should be case-specific, and in this case, the commission income at a 5% rate was deemed reasonable. Consequently, the High Court dismissed the appeal, stating that no substantial question of law arose in the matter.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of factual assessments in determining income based on seized documents and confirming the reasonableness of assessing commission income at a 5% rate in this particular case.