TMI Blog2014 (4) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... settle the dispute it is appropriate to consider the average net profit to work out the income of these assessment years which is below the average rate. Thus, for A.Ys. 2006-07 and 2007-08, income is to be estimated at 22.02% of the gross receipts and there is no change in the A.Ys. 2008-09 and 2009-10 as the declared rate of net profit is higher than the average net profit rate. Accordingly, we are of the opinion that entire gross receipts cannot be considered as income of the assessee. - ITA No. 2230/Hyd/2011, ITA No. 2231/Hyd/2011, ITA No. 1134/Hyd/2013, ITA No. 1135/Hyd/2013 - - - Dated:- 23-4-2014 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER For the Appellant : Sri A.V. Raghuram For the Respondent : Sri Solgy Jose T. Kottaram ORDER PER CHANDRA POOJARI, A.M.: These four appeals by the assessee are directed against two different common orders of the CIT(A)-VI, Hyderabad dated 24.10.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal Revised Original Revised Original Revised 2006 07 4265106 9598084 337000 1409450 774602 2673156 387684 2173503 2007 08 3944247 10652130 337000 1621157 649105 3380272 325510 2368960 2008 09 3778747 7803112 337000 899435 349780 2064145 762170 2509730 2009 10 3555913 8680269 347000 1221360 302126 2303199 792480 3041410 7. The assessee submitted before the lower authorities that the assessee had missed both receipts and expenditure in the original return, which was correctly declared in the revised return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted. The claim is not in accordance with the trends for the other years, either before or after these two years. In the original returns, the assessee had claimed ₹ 3,37,000 as expenses on salary for three years, from A.Ys. 2006-07 to 2008-09 and ₹ 3,47,000 for A.Y. 2009-10. The claim was revised only for two years, A.Y. 2006-07 and 2007-08 and not for the subsequent years. Salary is not an item of expenditure directly proportionate to every fluctuation in the turnover in the sense that the employees are not likely to be hired or retrenched in this fashion. This is an unusual variation in the expenses on salary and leads to the inference that the claim had been revised only to set off the higher turnovers. The salary of ₹ 3.37 lakhs/3.47 lakhs was claimed initially for 4 years but the assessee claims that this was an erroneous figure for merely 2 out of those 4 years. If indeed the assessee had erroneously claimed a lower figure, it would have been logical to expect that such an error would exist for the other years as well and also that the assessee while rectifying the error for two years would rectify the errors for the other years as well. 9. He further ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITAT in the case of G. Narsing Rao (cited supra), the claim of the assessee cannot be accepted. It would also be instructive to analyze the statistical implications, howsoever limited they may be, of the assessee's claims. The data for the expenditure on salaries is as follows: A.Y. Turnover (Rs.) Salary (original) (Rs.) Salary (Revised) (Rs.) Ratio to T/O (%) 2004-05 48,66,560 3,28,674 3,28,674 6.80 2005-06 38,96,543 1,56,690 1,56,690 4.00 2006-07 95,98,084 3,37,000 14,09,450 14.68 2007-08 1,06,52,130 3,37,000 16,21,157 15.00 2008-09 37,78,747 3,37,000 3,37,000 8.90 2009-10 35,55,913 3,47,000 3,47,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. The question that arises for consideration is whether the entire undisclosed turnover has to be taken into consideration while computing the total income or the profit element embedded in it should be taken. The Revenue contends that the expenditure on the unrecorded receipts was already claimed by the assessee. The CIT(A) found that by increasing the receipts, the net profit of the firm is correspondingly increased. Under the Income-tax Act, tax has to be levied on the income accrued to or received by the assessee. When the contract receipts to the extent of ₹ 4,02,818 were not recorded in the books of account and the assessee claims that the entire expenditure was recorded in the books of account naturally, the entire receipt would be the assessee's income. Therefore, the undisclosed contract receipts of ₹ 4,02,818 has to be considered for taxation. Accordingly, there is no infirmity in the orders of the lower authorities and the same is confirmed. 13. In our opinion, the ratio laid down by the Tribunal in the case of Sri G. Narsing Rao (cited supra) cannot be applied to the facts of the present case. In the present case, the AO accepted that there is exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come embedded in such receipt which can be subjected to tax. 10. As pointed out by the counsel for the respondent, this Court in the case of Commissioner of Income Tax v. President Industries, reported in (2002) 258 ITR 654 had taken a similar view. In the said case, during the course of survey conducted on the premises of the assessee, from the excise records found, an inference was drawn by the Assessing Officer that sales accounting to ₹ 29 lakhs and odd had not been disclosed in the books of account. The Assessing Officer made addition of the entire sum of the said undisclosed sales as income of the assessee for the assessment year 1994-95. Such addition was confirmed by the Commissioner (Appeals). The Tribunal, however, held that the entire sales could not have been added as income of the assessee, but only to the extent the estimated profits embedded in the sales for which the net profit rate was adopted entailing addition of income on the suppressed amount of sales. Such decision was carried in appeal by the revenue before the High Court. The High Court rejected the appeal, observing that unless there is a finding to the effect that investment by way of incurring th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds of the assessee should not be added in his income and that the Tribunal has erred in doing so. 14. We may recall that the Tribunal, in the impugned judgement, relied on its previous judgement in case of Kishor Mohanlal Telwala. The said judgement of the Tribunal was apparently carried in appeal by the revenue. The High Court by a speaking order dated 24.4.2000, dismissed the appeal holding that no question of law was involved. Significantly, in case or Kishor Mohanlal Telwala, the assessee was engaged in the business of construction. In his case, unaccounted receipt of ₹ 1.47 crores was detected. In this background, the Division Bench confirmed the view of the Tribunal and did not accept the contention of the revenue that as no accounts had been maintained to substantiate the expenditure incurred by the assessee, the entire amount received by the respondent should be treated as income. The Court concluded that the Tribunal was justified in considering that the respondent - assessee ought to have spent reasonable amount for the purpose of receiving such gross receipt. 15. It can, thus, be seen that consistently, this Court and some other Courts have been follow ..... 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