Facts of the Case

The assessee, Pan Tutorials Private Limited, engaged in running coaching classes, filed its return of income for Assessment Year 2018-19. A survey under Section 133A of the Income-tax Act was conducted at the business premises. During the survey, the Assessing Officer estimated total course fee receipts at ₹2,00,62,200 and projected profit of ₹92,06,910. On verification of the profit and loss account, it was noted that the assessee had declared turnover of ₹1,19,45,958. Treating the difference of ₹81,16,042 as suppressed receipts, the Assessing Officer added the same as income. The CIT(A) upheld the addition. Aggrieved, the assessee preferred an appeal before the Tribunal.

Issues Involved

Whether the Assessing Officer was justified in treating the entire estimated difference in receipts as income, whether GST component was required to be excluded while computing suppressed turnover, and whether only gross profit embedded in suppressed receipts could be brought to tax.

Petitioner’s Arguments

The assessee submitted that actual fee received during the year was lower than the amount estimated by the Assessing Officer. It was argued that gross receipts disclosed in the profit and loss account were exclusive of GST and that a significant portion of fees was received in instalments, with some students dropping out or receiving concessions and scholarships. It was further contended that in earlier assessment years the declared receipts were accepted by the Revenue and that the estimation made during survey was based on guesswork without considering commercial realities. The assessee argued that even if suppression was assumed, only gross profit on such suppressed turnover could be taxed.

Respondent’s Arguments

The Revenue relied on the orders of the Assessing Officer and the CIT(A) and contended that the assessee failed to substantiate the actual fee receipts with documentary evidence. It was argued that the survey revealed under-reporting of gross receipts and that the estimation made by the Assessing Officer was justified.

Court Order / Findings

The ITAT Patna observed that the assessee failed to satisfactorily explain the difference between estimated receipts and disclosed turnover, thereby establishing suppression of turnover. However, the Tribunal noted that it was not clear whether the estimated receipts included GST or were net of GST. Relying on settled judicial principles, the Tribunal held that in cases of suppression of sales or turnover, only the gross profit embedded in such suppressed receipts can be added to income and not the entire turnover. Accordingly, the Tribunal remitted the matter to the file of the Assessing Officer with a direction to compute gross profit on the suppressed turnover after excluding GST and to decide the issue afresh in accordance with law after providing reasonable opportunity of hearing to the assessee.

Important Clarification

The Tribunal clarified that while suppression of turnover justifies addition, taxation must be confined to the profit element embedded in such turnover. Gross receipts, particularly where GST is involved, cannot be added in entirety without determining the net profit component.

Final Outcome

The appeal filed by the assessee was partly allowed for statistical purposes, and the matter relating to addition on account of suppressed turnover was remanded to the Assessing Officer for fresh computation of gross profit excluding GST and adjudication in accordance with law after granting due opportunity of hearing to the assessee.

 

Link to download order https://www.mytaxexpert.co.in/uploads/1769074167_PANTUTORIALSPRIVATELIMITEDPATNAVS.DCITACITCENCIR3PATNA.pdf

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