Allahabad HC deletes Addition u/s 69 since Transactions were at Normal Selling Rates and were Properly backed by Sales Tax Forms issued by Parties [Read Order]

The Allahabad High Court has deleted the addition made by the Assessing Officer under Section 69 of the Income Tax Act 1961 since transactions were at normal selling rates and were properly backed by sales tax forms issued by parties.

The assessee in the present case being a dealer of Tata Chemicals Limited engaged in trading of soda ash has filed its return of income for the assessment year and declared a total income of Rs. 34,27,312.

During the course of assessment proceedings, the Assessing Officer (AO) noticed that pay orders worth Rs.1,17,79,084 were deposited in the bank account of the Assessee Company. On enquiry, it was found that these pay orders were purchased itself by the employee of the assessee firm in cash in the name of three firms and the same were deposited in the bank account of the Assessee firm.

In response, the Assessee submitted that the number of payment orders, as credited in assessee’s firm account, was the payment made by the above three firms against the sales of goods of Soda Ash made to them and the assessee and it also filed document evidence for supporting its contention.

However the AO added the aforesaid amount to the returns of the Assessee under section 69 of the Income Tax Act 1961 while completing the assessment by holding that the Assessee has failed to prove the delivery of the goods and remittance of the money from these firms and the same was treated as unexplained investment after rejecting the books of accounts of the Assessee firm.

On appeal the CIT(A) deleted the addition made by the AO by holding that the AO was not justified and correct to conclude that the sales to alleged three parties to the extent of Rs.1,17,79,084 was bogus and these parties had given only book entry to the assessee and also that the receipt of this amount in the account of said three parties through pay orders purchased in cash was actually undisclosed money of the assessee firm and the same was upheld by the Tribunal.

Thereafter the Revenue carried the matter before the Court on further appeal.

After analyzing the facts and circumstances of the present case deeply, the High Court Justice Bharati Sapru and Justice Neeraj Tiwari observed that “it is an admitted fact, in this case, is that the books of account of the assessee had not been rejected, nor it was ever recorded that the sales made by the assessee to the three parties were bogus”.

The Court further observed that “the transactions were made by the Assessee at normal selling rates and were properly backed by sales tax forms issued by the parties and had been found recorded in the accounts as well as the stock records. In such circumstances, it could not be said to be presumed to a colourable device or arrangement to avoid tax liability. Mere suspicion cannot be the basis of making an addition”. Subsequently, the appeal filed by the Revenue was dismissed by the Court.