Genuineness of Cash Sales cannot be Proved Merely on ground of Acceptance by VAT Authorities: Himachal Pradesh HC upholds Income Tax Penalty [Read Order]

The Himachal Pradesh High Court has held that acceptance of cash sales by the VAT authorities cannot be a sole ground to prove the genuineness of the transactions in order to remove the penalty under Section 271(1)(c) of the Income Tax Act, 1961.

During the relevant year, the AO found that the respondent-assessee, M/s JMJ Essential Oil Company, had shown cash sales of rupees three crores and Valued Added Tax (VAT) of rupees twelve lacs 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. However, the assessee failed to do the same.

Justice Sabina and Justice Satyen Vaidya observed that 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 twelve lacs 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 specific amount of rupees six lacs and rupees three lacs 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, we are of the opinion 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.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.