Cash Sales Accepted By VAT Dept. Not Sufficient To Hold It To Be Genuine: Himachal Pradesh High Court

The division bench of Justice Sabina and Justice Satyen Vaidya has held that the Assessing Officer was liable to independently look into the cash sales to come to a conclusion as to whether the said sales were genuine or not. The Assessing Officer, as well as the Appellate Authority, rightly gave the finding of fact that the cash sales put forth by the respondent were not genuine and that the respondent had introduced its unaccounted income in the garb of cash sales.

The respondent/assessee is in the business of manufacturing essential oils, commercially known as Musk/Attars Heena special, and undertaking sales. The assessee had filed its return claiming a deduction under Section 80 IC of the Income Tax Act, 1961. The case was taken up for scrutiny assessment. It was found that the assessee had shown cash sales of Rs. 3 crores and VAT of Rs. 12 lakhs remitted to the Sales Tax Authorities on the cash sales made only during the month of September, 2006. The Assessing Officer asked the assessee to justify the cash sales and give the complete addresses of the parties to whom the sales had been made.

The Assessing Officer found that the assessee had introduced its unaccounted income in the garb of cash sales. The cash sales were shown only in the month of September, 2006 and not prior to the period or thereafter. The parties to whom cash sales had been allegedly made could not be traced at the addresses given by the respondent. The cash bills were for a specific amount of Rs. 6 lakhs and Rs. 3 lakhs only. The amount of cash sales credited to the Books of Account was transferred to the accounts of the partners as cash withdrawals in the month of September, 2006. Thus, the assessee had failed to establish the genuineness of cash sales amounting to Rs. 3,12,00,000 including VAT. Hence, the Assessing Officer, vide order dated 13.03.2012, imposed a penalty to the tune of Rs.1,06,04,880 on the assessee.

The respondent filed an appeal against the order, which was dismissed by the Commissioner of Income Tax (Appeals), Shimla. However, the appeal filed by the respondent against the order, passed by the Commissioner of Income Tax (Appeals), was allowed by the Tribunal. The ITAT has deleted the penalty levied under section 271 (I)(C) of the Income Tax Act.

The department has raised the issue of whether the ITAT has erred in deleting the penalty, despite the fact that the assessee has furnished inaccurate particulars of income in the garb of fictitious cash sales.

The department contended that the Tribunal had erred in allowing the appeal. The respondent had shown fictitious cash sales and had claimed exemption under Section 80 IC. The addresses of the purchasers given by the respondent were not found correct on an inquiry. The purchasers could not be traced as the addresses given in the bills were incomplete and incorrect. Merely because VAT had been paid on the cash sales did not establish the fact that the sales were genuine.

The assessee contended that the assessee had duly disclosed the cash sales in the accounts. The sale bills were supported by Sales Tax Paid Challans and Sales Tax Returns filed by the respondent. The Books of Account have been accepted by the Sales Tax Authorities (VAT Authorities). Since the cash sales had been accepted by the Sales Tax Authorities, the respondent was not liable to pay any penalty. There was no element of fraud or suppression of facts with the intent to evade payment of tax.

The court held that the order passed by the Tribunal is liable to be set aside as the penalty levied was liable to be upheld in view of inaccurate particulars of income furnished by the respondent in the garb of fictitious cash sales to claim exemption under Section 80-IC.

Case Title: PCIT Versus M/s J.M.J. Essential Oil Company

Case No: Income Tax Appeal No.13 of 2016

Citation: 2022 LiveLaw (HP) 18 

Dated: 20.07.2022

Counsel For Appellant: Senior Counsel Vinay Kuthiala

Counsel For Respondent: Senior Counse B.C. Negi

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