Adding Alleged Bogus Sales Transactions To Assessee’s Income On Superficial Inquiry Without Consulting With Other Departments Not Conducive: Bombay HC
The Bombay High Court observed that adding alleged bogus sales transactions to the income of an assessee by the Assessing Officer on superficial inquiry without consulting with other departments/authorities is not conducive.
The Court stated that it is the solemn obligation and duty of the Income Tax Authorities and an Assessing Officer (AO) to procure all the information on such alleged bogus transactions from the other departments/authorities to bring such transactions to tax.
A Division Bench of Justice G.S. Kulkarni and Justice Somasekhar Sundaresan observed, “However, in a given case 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 such transactions to tax.”
Advocate Suresh Kumar appeared for the appellant, while Advocate Tanzil Padvekar represented the respondent.
The Income Tax Department (Department) had flagged purchases worth ₹1.34 crores made by SVD Resins & Plastics Pvt. Ltd. (the company) from six suppliers. These suppliers were listed as "ingenuine dealers" by the Sales Tax Department, leading the AO to question the legitimacy of the purchases and invoke Section 69C of the Income Tax Act, 1961 (the Act). This section pertains to unexplained expenditure, allowing the AO to make additions to the income of the assessee.
Despite the company's submission of substantial documentation, including ledger accounts, supplier confirmations, purchase bills, and delivery statements, the AO deemed the transactions suspicious and added the entire amount of ₹1.34 crores to the company's income as unexplained expenditure.
The Department took the matter before the High Court, contending that the entire amount of the purchases should be treated as bogus and added to the income of SVD Resins & Plastics Pvt. Ltd.
However, the High Court explained that the AO's reliance on general information from the Sales Tax Department, without concrete evidence linking the transactions to bogus activity, was insufficient to justify a full addition under Section 69C of the Act.
“Any half hearted approach on the part of the AO to make additions on the issue of bogus purchases would not be conducive. It also cannot be on the basis of superficial inquiry being conducted in a manner not known to law in its attempt to weed out any evasion of tax on bogus transactions. The bogus transactions are in the nature of a camouflage and/or a dishonest attempt on the part of the assessee to avoid tax, resulting in addition to the assessee’s income,” the Court remarked.
“If such approach is not adopted, it may also lead to assessee getting away with a bonanza of tax evasion and the real income would remain to be taxed on account of a defective approach being followed by the department,” the Bench noted.
Accordingly, the High Court dismissed the appeal.
Cause Title: Pr. Commissioner Of Income Tax-1 v. SVD Resins & Plastics Pvt. Ltd. (Neutral Citation: 2024:BHC-OS:11927-DB)
Appearance:
Appellant: Advocate Suresh Kumar
Respondent: Advocates Tanzil Padvekar and Tejal Kharkar
