Only Profit From Undisclosed Sales Must be Taxed Instead of Entire Sale: ITAT Upholds CIT(A)’s Order

The Income Tax Appellate Tribunal (ITAT), Kolkata, rejected an appeal filed by the revenue seeking to add the entire undisclosed sales to the assessee’s company as unexplained cash receipts under Section 68 of the Income Tax Act.

The assessee company, Gaurang Alloys and Iron Ltd, was covered under a search and seizure operation conducted on the Agarwal Group of cases. The AO noted that the assessee had made cash sales of manganese ore and other raw materials from its factory in AY 2020-21, amounting to Rs 6,77,57,463. The AO treated the whole amount of these cash sales as unexplained cash credit under section 68 of the Income Tax Act. The assessee company appealed before the CIT(A).

The CIT(A) observed the facts of the case and provided partial relief to the company, holding that only the profit from the undisclosed sales should be taxed rather than taxing the entire sale amount. The CIT(A) applied a gross profit (GP) rate of 6.5% of the sales, and the remaining addition was deleted. The revenue challenged this order before the ITAT, Kolkata.

The ITAT, in its order, agreed with the CIT(A)’s approach, ruling that the entire sales cannot be added to the company’s income. The Tribunal said that applying a G.P. rate to calculate only the profit embedded in the unaccounted sales was the correct method. Therefore, the revenue’s appeal was dismissed, and the CIT(A)’s order was upheld.