M R FURNISHING PRIVATE LIMITED ,DELHI V. ASSISSTANT COMMISSIONER OF INCOME TAX , DELHI

ITA 3229/DEL/2023

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The case involves M R Furnishing Private Limited, a company engaged in retail trade, interior designing, and furniture manufacturing, which faced a search and seizure operation leading to the discovery of unaccounted sales. The company declared additional income in its return, which was partially accepted by the Assessing Officer (AO) but with further additions based on a profit rate applied to undisclosed cash sales. The CIT(A) later restricted these additions, which the assessee appealed against in the Tribunal, challenging the application of the profit rate and the denial of deductions for purchase costs and business expenses. The Tribunal dismissed the appeal, agreeing with the CIT(A)'s decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312170 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2022-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUJIT KUMAR
• Assessee Lawyers: SUDARSHAN ROY
• Keywords: Business expenditure; Cost of acquisition; Search and seizure; Loose papers
• Section: 143(3); 28

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.3229/Del/2023 (ASSESSMENT YEAR 2022-23) M R Furnishing Private Limited, 4634, Ajmeri Gate, Delhi-100066 PAN-AAECM3983D Vs. Asst. CIT, Delhi. (Appellant) (Respondent) Assessee by Shri Sudarshan Roy, Adv. Department by Shri Sujit Kumar, CIT-DR Date of Hearing 01/05/2025 Date of Pronouncement 01/05/2025 O R D E R PER MANISH AGARWAL, AM: This is an appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-27, New Delhi [Ld. CIT(A), in short], dated 15.09.2023 in appeal No. CIT(A), Delhi/27/10002/2021-22 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) for Assessment Year 2022-23. 2. Brief facts of the case are that assessee is a company engaged in the business of retail trade, interior designing and manufacturing furniture. A search and seizure operation in this case was carried out on 09.02.2022 and during the course of search certain loose papers / documents were found and seized indicating unaccounted-for sales/receipts based on which the assessee itself has offered additional income of Rs.1,01,13,199/- being the profit earned on the said sales. The return for the year under appeal was filed on 08.10.2022 declaring total income of Rs.5,28,58,900/- which inter-alia includes the additional income on account of profits from undisclosed sales. The assessment 2 ITA No.3229/Del/2023 M R Furnishing Pvt. Ltd. vs. ACIT was completed u/s 143(3) of the Act dated 27.02.2023 wherein the total income of the assessee was assessed at Rs.6,13,47,900/- by making further addition of Rs.84,88,999/- by applying profit rate of 40.53% on the undisclosed cash sales. The AO had reduced the additional income offered by the assessee in the return of income filed at Rs.1,01,13,199/- being the profit on such undisclosed sales and the remaining amount of Rs.84,88,999/- was added to the income of the assessee. Against this order, the assessee preferred appeal before the Ld. CIT(A) who vide impugned order dated 27.02.2023 allowed the appeal of the assessee and addition towards profits on undisclosed sales was restricted to the extent of additional income admitted and offered for tax in the return of income filed by the assessee. However, the assessee is in appeal before tribunal in present appeal wherein the appellate order is challenged on following grounds of appeal: “1. That on the facts and circumstances of the case, the impugned assessment order dated 27.02.2023 passed under section 143(3) of the Act, completing the assessment at a total income of Rs. 6,13,47,899/-as against returned income of Rs. 5,28,58,900/- is beyond jurisdiction, bad in law and void ab initio. 2. That the assessing officer erred on facts and in law in making the addition of Rs. 84,88,999/-, by denying the deduction of purchase cost of the goods sold and business expenses claimed by the assessee against the out of book sales of Rs. 4,58,97,356/- and computing profit on such sales at Rs. 1,86,02,198/- applying GP Rate of 40.53%, and making addition of differential amount between profit computed by applying GP and net profit claimed by assessee on such cash sales (1,86,02,198 – 1,01,13,199) on the basis of loose papers found during the course of search. 2.1 That the assessing officer erred on facts and in law in taking a contradictory stand in as much as making additions on account of unaccounted sales found in the loose papers but not allowing the purchase cost of the goods sold of Rs. 1,95,34,075/- attributable to the aforesaid unaccounted sales as well as business expenses of Rs. 1,62,50,082/- incurred out of the cash generated from such sales, forming part of the same loose sheets/papers. 3. That the assessing officer erred on facts and in law charging interest under section(s) 234A, 234B, 234C of the Act.” 3. At the outset, from the perusal of the appellate order, we find that while deciding the appeal of the assessee in grounds of appeal No.2 & 2.1, the Ld. CIT(A) in para 5.1 has restricted the additions on account of profits from undisclosed sales at Rs.1,01,13,199/- being the additional income declared by the assessee in its return of income filed and the remaining addition of 3 ITA No.3229/Del/2023 M R Furnishing Pvt. Ltd. vs. ACIT Rs.84,88,999/- made by the AO was deleted. The relevant observations of the Ld. CIT(A) are as under: “5. Ground of Appeal Nos.2 & 2.1: 5.1 Analysis and Findings: i. It is not disputed by the appellant that there was undisclosed cash sales of Rs.4,58,97,356/- for the AY 2022-23 as also determined by the Id. AO. ii. The Id. AO has applied the GP, ratio of 40.53% on this undisclosed cash sales and arrived at undisclosed income of Rs.1,86,02,198/- and made the addition of Rs.84,88,999/- after giving the credit of undisclosed income (from undisclosed cash sales) of Rs.1,01,13,199/- declared by the appellant in its ITR. iii. The appellant has submitted that from the same seized material from which undisclosed sales have been calculated, there were seized papers on which direct as well as indirect cash expenses were also mentioned. Therefore, the id. AO was not correct in taking only undisclosed cash sales from the seized material and ignoring other entries which pertain to cash expenses. iv. The above contention of the appellant was found to be correct. The details of cash sales and expenses as per seized material are as under: Particulars Amount (in Rs.) Remarks Cash sales 4,58,97,356 As per page 1-14 of Annexure 2 of Seized Material. Cost of Goods Sold (‘COFS’) 1,95,34,075 As per page no.15-39 of Annexure 2 of Seized Material-these were recorded in the books of accounts and forms part of the closing Stock of inventory as on 31.02.2022. Other Expenses 1,62,50,082 As per page no.67-77 of Annexure 2 of Seized Material incurred for offering the Undisclosed cash sales of Rs.4,58,97,356/- Undisclosed Income 1,01,13,199 v. However, the appellant has failed to provide justification behind each and every indirect expense that same was spent for the purpose of business and of revenue in nature. vi. It is also verified that the accounted indirect cash expenses are Rs.16,41,973/- only and therefore it cannot be said that these unaccounted cash expenses are part of accounted indirect cash expenses. vii. Therefore, to arrive at logical conclusion, it is held that instead of applying GP ration on Undisclosed cash sales, the NP ratio should be applied which would take care of direct as well as indirect cash expenses towards making undisclosed cash sales. As per Books of account, the NP ratio for AY 2022-23 is 10.48% and therefore undisclosed income comes to Rs.48,10,043/- (458,97,356*10.48/100). viii. However, it is further observed that the appellant itself has declared undisclosed income of Rs. 1,01,13,199/- in its ITR for the AY 2022-23 and this has also been accepted by the Id. AO in his assessment order (para 6.11). ix. In view of the above discussion, the undisclosed income is held at Rs.1,01,13,199/- (as declared by the appellant in its ITR) and the addition of Rs.84,88,999/- on account of 4 ITA No.3229/Del/2023 M R Furnishing Pvt. Ltd. vs. ACIT income from undisclosed cash sales u/s 28 of the IT Act is deleted and these grounds of appeal are allowed. 6. Ground of Appeal Nos. 1 & 3 are general in nature and therefore not adjudicated separately.” 4. From the perusal of the observation of ld. CIT(A), we find that assessee has already got succeeded in its appeal before the Ld. CIT(A) who has allowed the appeal of the assessee and restricted the additions to the extent of additional income offered by the assessee in the return of income filed. Therefore, the grievance of the assessee that net profit would be applied on such undisclosed sales become academic. Further if the contention of the assessee in present appeal is considered it might have resulted at the income which would be below the income already admitted and declared by the assessee in the return of income filed. In view of these facts, we find no reason to interfere in the order of Ld. CIT(A) who has already allowed the appeal of the assessee by restricting the additions on account of profits on undisclosed sales to the extent of the profits declared by the assessee and the said order is hereby upheld. 5. As the result, the appeal of the assessee is dismissed. Order pronounced in the Open Court on 01/05/2025. Sd/- Sd/- (MAHAVIR SINGH) (MANISH AGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 07/05/2025 PK/Sr. Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "