COMMISSIONER OF INCOME-TAX Vs. BALCHAND AJIT KUMAR

JUDGEMENT

(1.) IN this appeal preferred under Section 260a of the Income-tax Act, 1961 (for brevity "the Act"), the Revenue has assailed the order passed by the Tribunal in I. T. A. No. 269/jab of 1998.

(2.) SANS unnecessary details, the facts as have been set forth are that there was a search operation conducted at the business and residential premises of the assessee. During the search, it was found that there were credit sales which were not reflected in the books of account. The Assessing Officer on scrutiny of the regular books of account maintained by the assessee being dissatisfied rejected the same and added a sum of Rs. 8,19,255 towards the sales profit of the assessee. The said order was contested by the assessee in the backdrop that the sales were fully recorded and the assessee was following a system of recording the credit sales in the way as and when the credit sales were made, the assessee issued cash memos of sales and the outstandings were recorded in the copy separately. The Commissioner of Income-tax (Appeals) came to the conclusion that the entire credit sales could not have been included in the total income of the assessee and accordingly followed the method of adding a net profit rate of five per cent. on these sales and accordingly Rs. 40,960 was included on that score. An appeal was preferred by the Revenue assailing the order of the first appellate authority vide which he has adopted this net profit rate. The assessee being dissatisfied with regard to the rate of addition preferred an appeal. The Tribunal in its order came to hold that the first appellate authority had taken recourse to a reasonable method by adopting the net profit rate inasmuch as the entire sale could not have been regarded as the profit of the assessee. The Tribunal, however, did not think it appropriate to reduce the rate which was added by the first appellate authority. Accordingly, it dismissed both the appeals. This court while admitting the appeal framed the following substantial question of law :

(3.) ON appreciating the rival submissions raised at the Bar, we have carefully perused the order passed by the Commissioner of Income-tax (Appeals) and also that of the Tribunal. It is not disputed that the undisclosed income was Rs. 2,57,000. The sole question that arises for consideration is whether the entire income has to be treated as profit or there should be adoption of a method of net profit income. In the case of CIT v. President Industries [2002] 258 ITR 654, the High Court of Gujarat in a similar matter came to hold as under (page 655) :