The Himachal Pradesh High Court has setting aside the order passed by the Income Tax Appellate Tribunal, Division Bench, Chandigarh saying the cash sales accepted by the VAT department are not sufficient to hold that the cash sales were genuine. 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 division bench of Justice Sabina and Justice Satyen Vaidya passed this order while hearing an Income Tax Appeal filed by Principal Commissioner Of Income Tax.
The Appellant-Revenue has filed the appeal challenging the order dated 25.08.2015, passed by the Income Tax Appellate Tribunal, Division Bench, Chandigarh, whereby appeal filed by the respondent was allowed.
The respondent was running a business of manufacturing essential oil, commercially known as Musk/Attars Heena special and sales thereof. Assessee respondent had filed its return claiming deduction of Rs 85,31,46,762 under Section 80 IC of the Income Tax Act, 1961.
The case was taken up for scrutiny assessment and the Court found that the respondent had shown cash sales of Rs 3 crores and Valued Added Tax (VAT) of Rs 12 lakh was remitted to Sales Tax Authorities on the cash sales made only during the month of September 2006 to different parties. The Assessing Officer asked the respondent to justify the cash sales and give complete addresses of the parties to whom the sales had been made.
The Assessing Officer found that the respondent had introduced its unaccounted income in the garb of cash sales. The cash sales had been shown only in the month of September 2006 and not prior to the said 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 of a specific amount of Rs 6 lakh and Rs 3 lakh only. The amount of cash sales credited to the Books of Account were transferred to the accounts of the partners as cash withdrawals in the month of September 2006 itself. Thus, the respondent had failed to establish genuineness of cash sales amounting to Rs 3,12,00,000 including VAT. Hence, the Assessing Officer, order dated 13.03.2012, imposed a penalty to the tune of Rs 1,06,04,880 on the respondent.
Appeal filed by the respondent against the said order dated 13.03.2012, was dismissed by the Commissioner of Income Tax (Appeals), Shimla, vide order dated 22.10.2012. However, the appeal filed by the respondent against the order dated 22.10.2012, passed by the Commissioner of Income Tax (Appeals), was allowed by the Tribunal order dated 25.08.2015. Hence, the appeal by the appellant revenue.
Vinay Kuthiala, Senior Counsel, assisted by Vandana Kuthiala, counsels for the appellant, submitted that the Tribunal had erred in allowing the appeal. The respondent had shown fictitious cash sales and had claimed exemption under Section 80 IC of the Act. 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 cash sales did not establish the fact that the sales were genuine. By payment of a meagre amount of 4% VAT, the respondent had brought tax exempt funds of Rs 3 crore into its books. The stocks maintained by the respondent did not tally with the raw material, vis-a-vis, the production.
Since the respondent had furnished inaccurate particulars of income eligible for exemption under Section 80 IC by claiming fictitious cash sales, it was a clear case of fabrication of accounts and the penalty had been rightly imposed on the respondent by the Assessing Officer.
B.C. Negi, Senior Counsel assisted by Shaurya, counsel for the respondent-assessee, has opposed the appeal and has submitted that the respondent had duly disclosed the cash sales in the accounts. The sale bills were supported by Sales Tax Paid Challans and Sales Tax Return filed by the respondent. The Books of Account had 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 intent to evade payment of tax.
Merely because the appeal filed by the respondent challenging the order dated 24.12.2009 passed by the Assessing Officer, holding that the respondent had failed to explain the cash sales in question, would not ipso facto make out a case for awarding penalty to the respondent.
The Court observed that the question that requires consideration in the case is as to whether penalty could have been imposed on the respondent under Section 271(1)(c) on the ground that the respondent had furnished inaccurate particulars of his income in the garb of fictitious cash sales with a view to claim exemption under Section 81 IC of the Act. The Assessing Officer while examining the return filed by the respondent with respect to Financial Year 2006-2007 (Assessment Year 2007- 2008) under Section 143(3) of the Act, order dated 24.12.2009, held that respondent had failed to explain the cash sales amounting to Rs 3,12,00,000 in September 2006.
The Court noted,
The said order has been admittedly upheld upto the Supreme Court order dated 23.08.2019. Appeal filed by the appellant was dismissed by the Court order dated 5th November, 2018. Penalty proceedings with regard to inaccurate cash sales set up by the respondent were separately initiated. It was observed by the Assessing Officer as well as the Appellate Authority (Commissioner of Income Tax (Appeals) that the respondent had claimed cash sales amounting to Rs 3,12,00,000 only for the month of September 2006.
No such cash sale was ever set up prior to or after September 2006. The cash sales were duly scrutinized and it was found that in some bills, the complete particulars of the purchasers had not been given. The addresses mentioned on the cash bills were found to be incorrect on inquiry.
Merely because the respondent had got orders from the VAT Authority, did not in itself make the cash sales genuine. By paying a sum of Rs 12 lakh by way of VAT on cash sales within the State, the respondent had credited cash to its Books to the tune of Rs 3,12,00,000. The cash bills were of a specific amount of Rs 6 lakh and Rs 3 lakh only and the amount had been transferred to the accounts of partners as cash withdrawals in the month of September 2006 itself.
Thus, the Assessing Officer as well as the Appellate Authority, after examining the facts of the case, came to a finding that it was a clear case of fabrication of accounts by the respondent and the respondent was liable to pay penalty under Section 271(1)(c) of Income Tax Act, 1961.
The finding of fact arrived by the Assessing Officer as well as the Appellate Authority, has been set aside by the Tribunal mainly on the ground that the respondent had substantiated its explanation by sale bills, sale tax Challan and sale tax order passed by the VAT Authorities.
Thus, the Tribunal was mainly influenced by the fact that as the VAT authority had accepted the cash transactions in question, the cash sales put up by the respondents were genuine.
However, the Court opined that merely because the VAT authorities had accepted the cash sales set up by the respondent in itself, is not a sufficient ground to hold that the cash sales set up by the respondent were genuine. 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.
“In view of the peculiar facts and circumstances of the case, the Assessing Officer as well as the Appellate Authority, rightly gave finding of fact that the cash sales put forth by the respondent were not genuine and the respondent had introduced its unaccounted income in the garb of cash sales. The Tribunal erred in deleting the penalty levied under Section 271(1)(c) of the Act despite there being sufficient material on record to show that the cash sales set up by the respondent were fabricated and not genuine.
After carefully going through the totality of circumstances, we are of the considered opinion that the order passed by the Tribunal is liable to be set aside as the penalty levied under Section 270(1)(c) of the Act against the respondent was liable to be upheld in view of inaccurate particulars of income furnished by the respondent in the garb of fictitious cash sales with a view to claim exemption under Section 80-IC of the Act,” the Court observed while allowing the appeal.
The Court set aside the order dated 25.08.2015, passed by the Income Tax Appellate Tribunal, Division Bench, Chandigarh.