2022 (8) TMI 1037 - HC - Income Tax

Estimation of profit on on money receipt - Tribunal estimated of 6% of net profit on the total on-money receipts - HELD THAT - Tribunal was justified in upholding the contention of the assessee that considering the fact that entire money receipts cannot be taxed in entirety and only the profit embedded therein and such receipts is to be considered for arriving at correct true and real income to be taxed under the provisions of the Act 1961. Tribunal after following the decision of PANNA CORPORATION 2014 (11) TMI 797 - GUJARAT HIGH COURT ABHISHEK CORPORATION 1999 (10) TMI 742 - GUJARAT HIGH COURT AND PRESIDENT INDUSTRIES. 1999 (4) TMI 8 - GUJARAT HIGH COURT and after considering that the assessee had shown net profit at 4.55% for the assessment year under consideration and 4.59% for A.Y. 2010-11 in the books of account and considering the fact that the project undertaken by the assessee comes under deduction of Section 80IB(10) of the Act 1961 there was no intention on the part of the assessee to disclose the lower rate of profit and in that view of the matter the Tribunal estimated 6% net profit of total on-money receipts. Tribunal has not committed any error in estimation of 6% of net profit on the total on-money receipts of the respondent assessee and as such there is no legal infirmity in the impugned order of the Tribunal giving rise to any question of law much less any substantial question of law proposed or otherwise. The present Tax Appeal is therefore summarily dismissed.

Summary

Issues:
1. Interpretation of Section 260A of the Income Tax Act, 1961
2. Disallowance under Section 80IB(10) of the Act, 1961
3. Addition of undisclosed income based on survey findings
4. Estimation of net profit on unrecorded receipts

Interpretation of Section 260A of the Income Tax Act, 1961:
The High Court heard the appeal under Section 260A of the Income Tax Act, 1961, challenging the judgment of the Income Tax Appellate Tribunal. The Tribunal had considered specific substantial questions of law related to the case.

Disallowance under Section 80IB(10) of the Act, 1961:
The case involved the disallowance of deduction claimed by the assessee under Section 80IB(10) of the Act, 1961. The CIT (Appeals) upheld the assessment order, stating that the basic condition of Section 80IB(10) was not fulfilled by the assessee. The Tribunal partly decided in favor of the assessee, estimating the profit element at 6% of the unrecorded receipts.

Addition of undisclosed income based on survey findings:
The Assessing Officer made an addition of undisclosed income based on survey findings, rejecting the book results under Section 145(3) of the Act, 1961. The CIT (Appeals) dismissed the appeal, emphasizing the unrealistic claim of expenses and increase in closing stock by the assessee.

Estimation of net profit on unrecorded receipts:
The Tribunal estimated the net profit at 6% of the total unrecorded receipts, considering the principle that only the profit embedded in such receipts should be taxed. The Tribunal's decision was based on previous court judgments and the specific circumstances of the case. The High Court upheld the Tribunal's decision, stating that the estimation of 6% net profit on the total on-money receipts was justified and dismissing the appeal.

In conclusion, the High Court dismissed the Tax Appeal, finding no legal infirmity in the Tribunal's order regarding the estimation of net profit on the unrecorded receipts. The judgment highlighted the principle that only the profit embedded in such receipts should be taxed, not the entire receipts themselves, based on relevant legal precedents and the specific facts of the case.