Income Tax Additions Can't Be Made On The Basis Of Superficial Inquiry: Bombay High Court

The Bombay High Court has held that income tax additions cannot be made on the basis of superficial inquiry.

The bench of Justice G. S. Kulkarni and Justice Somasekhar Sundaresan has observed that the findings which were arrived by the CIT(A) as also by the tribunal would suggest that the department did not dispute the assessee's sales, as there there was no discrepancy between the purchases as shown by the the assessee and the sales declared.

The respondent/assessee is in the business of trading in resins and chemicals on wholesale basis. On information received from the DGIT (Investigation), Mumbai the Assessing Officer (AO) invoked Section 147 of the Income Tax Act, 1961 to reopen the completed assessment by issuing notice under Section 148 dated 12 March 2013. In response the assessee filed a revised return, and also sought the reasons as recorded by the A.O.

The A.O. was of the opinion that the assessee had made purchases amounting to Rs.1,34,25,500/- from six parties who were declared by the Sales Tax Department as ingenuine dealers. During the assessment proceedings, the assessee filed ledger accounts, conformation of suppliers, purchase bills, delivery bank statements and other documentary evidence to justify the genuineness of the purchases. The AO nonetheless was of the opinion that the disputed purchases did not have nexus with the corresponding sales. The AO made an addition of the amount under Section 69C on the ground of there being unexplained payments in respect of the disputed purchases.

The assessee challenged the order before the Commissioner of Income Tax (Appeals). The CIT(A) estimated the profit at 12.5% on the purchases made by the assessee. The assessee had shown gross profit at 4.74% in the assessment year in question, the CIT(A) reduced it from 12.5% and confirmed the addition to the extent of 7.76%.

The department contended that the department has limited submissions in assailing the impugned order. It is his primary submission that the approach of the CIT(A) as also the part acceptance of such approach by the tribunal in the impugned order needs interference of this Court on the question of law as raised by the department. The entire purchases of Rs. 1,34,25,500 were required to be discarded as bogus purchases and the relevant amounts brought to tax by making additions to the assessee's income, as rightly undertaken by the AO.

The court while dismissing the appeal of the department held that if the Income Tax Authorities are of the view that there are questionable and / or bogus purchases, in that event, it is the solemn obligation and duty of the Income Tax Authorities and more particularly of the A.O. to undertake all necessary enquiry including to procure all the information on such transactions from the other departments / authorities so as to ascertain the correct facts and bring transactions to tax.

Counsel For Appellant: Suresh Kumar

Counsel For Respondent: Tanzil Padvekar

Case Title: Pr. Commissioner Of Income Tax-1 Versus SVD Resins & Plastics Pvt. Ltd.

Case No.: Income Tax Appeal No. 1662 Of 2018

Click Here To Read The Order