Gujarat H.C : Whether the Tribunal is right in law and on facts in holding that only the net profit rate can be applied in respect of admitted sales of goods outside the books of account ?

High Court Of Gujarat

CIT vs. President Industries

Section 256(2)

Asst. Year 1994-95

Rajesh Balia & A.R. Dave, JJ.

IT Appln. No. 53 of 1999

20th April, 1999

Counsel Appeared

Manish R. Bhatt, for the Petitioner : None, for the Respondent



By this application under s. 256(2), the CIT seeks a direction to the Tribunal, Ahmedabad Bench B, Ahmedabad, to state the case and submit the following question of law said to be arising out of its order in IT Appln. No. 3101/Ahd/1997 for the asst. yr. 1994-95 :

“Whether the Tribunal is right in law and on facts in holding that only the net profit rate can be applied in respect of admitted sales of goods outside the books of account ?”

The facts giving rise to the present case are that during the course of survey conducted on the premises of assessee on 1st Dec., 1994, from the excise records found, inference was drawn by the AO from the movement of finished goods from the premises of assessee to godowns that sales amounting to Rs. 29,01,300 have not been disclosed in the books of account. AO made the addition of the entire sum of the said undisclosed sales as income of the assessee for the asst. yr. 1994-95. The additions on account of undisclosed sales was affirmed by the CIT(A) to the reduced sum of Rs. 28,35,883. On further appeal the Tribunal found that the entire sale could not have been added as income of the assessee for the assessment year in question 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. The Tribunal also found that there is no material on the record to suggest that the assessee made any investment outside books of accounts to make alleged unaccounted sales in respect of the aforesaid appellate order. The applicant made an application under s. 256(1) for referring the aforesaid two questions said to be arising out of Tribunal’s order.

Having perused the assessment order made by the AO, the order made by the CIT(A) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under s. 256 (1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold have been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether entire sum of undisclosed sale proceeds can be treated income of the relevant assessment year answers by itself in negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.

4. We are, therefore, of the opinion that no question of law which requires to be referred to this Court arise out of Tribunal’s appellate order. The order of Tribunal under s. 256(1) is not erroneous in reaching such conclusion. Application is rejected

[Citation : 258 ITR 654]

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