Only the profit element which is taxable if unrecorded sales are admitted and offered to tax in a survey action due to shortage of stock
The Pune Bench of ITAT in Ashwin Rajendra Bade vs. ACIT Central Circle, Kolhapur, ITA. No.1892/PUN/2024 has held that when unrecorded sales are admitted and offered to tax (such as in a survey action where shortage of stock is found), only the profit element embedded in such unaccounted sales should be brought to tax, and not the entire sales amount.
The Tribunal has stated that the Hon’ble Apex Court, in the case of CIT vs. Shelly Products reported in (2003) 129 Taxman 271 (SC), referred to Article 265 of the Constitution of India, which provides that no tax shall be levied or collected except by authority of law. Taking guidance from the above judgment and considering the fact that the assessee, in the statement recorded during the course of the survey, stated that the cash received from unrecorded sales had been applied for giving advances to farmers for the purchase of raw material, and the remaining amount had been utilised for the expansion of the existing showroom. However, this fact has not been verified by the Assessing Officer. Therefore, it is necessary for the AO and the CIT(A) to verify the claim of the assessee and allow it in accordance with law.
The copy of the order is as under:
