Can an assessee be taxed for a hypothetical income that was neither earned nor received, but was filed in the tax return by mistake?

This case concerns an assessee who was taxed on an alleged undisclosed sale of Rs. 77,00,063. The Assessing Officer (AO) made this addition based on a discrepancy between the turnover declared in the income tax return and the turnover reported to the Service Tax Department. The assessee argued that they only earned income from labour supply services and that the higher figure reported to the Service Tax Department was an error.

IN THE INCOME TAX APPELLATE TRIBUNAL
 “C” BENCH, AHMEDABAD
(Convened through Virtual Court)

BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
& SMT. MADHUMITA ROY, JUDICIAL MEMBER

I.T.A. No. 802/Ahd/2018
Assessment Year : 2014-15) 

Ashokkumar
Parshotamdas Solanki
Prop. of Shiv Shakti
Construction
Vankar Vas, At Manud,
Post Manud, Manud,
Patan, Gujarat 384265
PAN/GIR No. : BCLPS4828L
Appellant

Vs.

ITO
Ward -1, Patan
Respondent 

Appellant by : Shri Kalpesh Doshi, A.R.
Respondent by : Shri L. P. Jain, Sr.D.R.

Date of Hearing 13/05/2021
Date of Pronouncement 01/06/2021

O R D E R

PER PRADIP KUMAR KEDIA - AM:

The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals), Gandhinagar (‘CIT(A)’ in short), dated 06.11.2017 arising in the assessment order dated 28.12.2016 passed by the  Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 the Act) concerning AY 20142-15.

2. When the matter was called for hearing, the learned counsel for the assessee, at the outset, submitted that although several grounds have been raised, the solitary grievance is addition of Rs.77,00,063/- towards undisclosed sales on the basis of comparison made by the AO in relation to turnover declared by the assessee visà-vis turnover statedly reported in the prescribed form to the Service Tax Department.

3. As pointed out, the assessee is an individual and engaged in supply of labour for construction and allied activities in the name of proprietary concern M/s. Shiv Shakti Construction. The return of income for AY 2014-15 under consideration was filed declaring a turnover of Rs.58,67,316/- and a total income of Rs.4,87,000/-. It was submitted that the assessee is engaged in the business of supply of labour contract work and is duly registered with service tax department. It was contended that the assessee has rendered services within India only and earned income from supply of labour amounting to Rs.58,67,316/- only. However, the AO has recorded a finding that as per AIR information by Service Tax Department, the turnover is declared at Rs.1,35,67,379/-. The AO has thus alleged an amount of Rs.77,00,063/- as undisclosed income towards understatement of turnover to the Income Tax Department. 

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