INCOME TAX ACT, 1961

Section 69C Section 147

Income from undisclosed source - Addition under section 69C - Unexplained expenditure - Undisclosed income on undisclosed investment in sales and profit on undisclosed sales

Assessee's case was reopened under section 147 on the basis of reason to believe that there was undisclosed sales detected during the course of search operation. AO noticed that assessee had made the unrecorded sale and it had conceded that the said sale was made out of unaccounted purchases. AO noticed that assessee failed to furnish the sources of purchase by failing to provide the rotation of cash flow as asked for. Assessee had failed to prove that the relevant purchases corresponding to the undisclosed sales have been made by way of rotating sale proceeds. Revenue must be permitted to enquire and ascertained that payment relating to the purchase was reflected in the books of the recipient payee. Since assessee company could not furnish any details of purchase and source of it, so the corresponding purchases, i.e., undisclosed sale minus the gross profit, i.e., Rs. 2,65,30,653 was treated as unexplained expenditure and added back to total income under section 69C. Held: Assessee as per his own admission had made the undisclosed sales from undisclosed purchases and during appellate proceedings could not provide any details of this undisclosed investment. CIT(A) noticed that assessee`s undisclosed sales as detected during search and seizure operations carried out by the Officers of Intelligence amounted to Rs. 2,76,07,339 during the assessment year 2010-11. The average sales per month amounts to Rs. 23,00,611 and average GP on sales as disclosed in the returns is 3.90% which amounts to Rs. 89,724 and average purchase per month amounts to Rs. 22,10,887. The undisclosed investment was, therefore, estimated at Rs. 22,10,887 on undisclosed sales of Rs. 2,76,07,339. CIT(A) also computed the profit on undisclosed sales of Rs. 2,76,07,339 at the rate of 3.90% at Rs. 10,76,686. Therefore, addition was restricted to Rs. 32,87,573 (Rs. 22,10,887 plus Rs. 10,76,686), instead of Rs. 2,76,07,339 as undisclosed income on undisclosed investment in sales and profit on undisclosed sales.