INCOME TAX ACT, 1961

Section 143(3)

Assessment - Additions to income - Enhancement of profit by enhancing sales value - Addition on account of undisclosed trading profit

Assessee was a proprietor. He was also an ordained priest and his church was running several educational institutions. Through the firm, he was acquiring books and other study material for onward transmission to students in the said educational institutions. His return was selected for scrutiny and it was discovered that purchase bills were prepared by seller at MRP rates but discount ranging from 10% to 50% was allowed and it was alleged that the assessee was selling the books on MRP rates. Further, AO alleged that the assessee failed to show that the charity was not on his personal account and miserably failed to show the connection between donation/charity and the business of the retail sale of books to schools. Ultimately he held that the assessee had not disclosed trading profits to the tune of Rs. 3,47,83,926 and consequently made addition of the same. However, CIT(A) restricted the said addition to Rs. 1,78,35,234. Held: Since assessee was working on a missionary spirit, he was required to sell books/stationery free of cost to needy students on the recommendations of Principal of each school and for which the list was given to the AO along with necessary confirmation from the Principals. Further, since addition made on account of undisclosed trading profit was worked out on cost of sales, no separate addition on account of discount allowed by assessee and on account of free distribution of books was required to be made again as it would tantamount to double addition. Therefore, the CIT(A) was justified in deleting separate addition of Rs. 1,51,59,103, which was made by AO on account of free distribution of books and on account of discount allowed by the assessee to poor students on the recommendations of various schools.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2008-09 to 2012-13

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