COMMISSIONTER OF INCOME TAX vs. PREMIER STEELS, JEW STREET ERNAKULAM
What did the High Court hold?
The High Court held that both the First Appellate Authority and the Tribunal passed orders without verifying the records, merely accepting the assessee's explanation. The Court noted that if the sales register contained all details of sales, the cash accounted for should reflect the full amount received. The Revenue's counsel produced extracts showing corrections in the accounts, which the assessee refuted. Since the Tribunal had not verified stock register or stock movement documents to ascertain the availability of physical stock for the alleged cash sales of Rs. 60 lakhs, the matter required detailed consideration by the AO. Consequently, the appeal was allowed, the orders of the Tribunal and First Appellate Authority were set aside, and the matter was remanded to the AO. The assessee was directed to establish the claim of stock availability, cash sales, payments received, monthly returns filed, and sales tax payments with supporting documents. If proven, the AO was to delete the addition; otherwise, it would be sustained.
What were the facts?
The Revenue appealed against an order of the Income Tax Appellate Tribunal (Tribunal) which upheld the cancellation of an addition of Rs. 60 lakhs made to the assessment of the respondent-assessee, Premier Steels. The Assessing Officer (AO) had added this amount on the grounds that the assessee inflated sales in the cash book, which was at variance with the sales register. The difference of Rs. 60 lakhs, deposited in the bank, was treated as unaccounted cash introduced as business income. The First Appellate Authority and the Tribunal accepted the assessee's explanation that these were emergency cash sales made for bank deposits to pay suppliers like SAIL. The Revenue contended that this explanation was accepted without material proof.
What were the issues?
1. Whether the Tribunal was justified in confirming the cancellation of the addition of Rs. 60 lakhs in the assessment of the respondent-assessee, contrary to the findings of the Assessing Officer (Section 254 of the Income Tax Act, 1961). Assessee's Contentions: The assessee contended that the corrections in the cash book were not made to introduce black money. They produced documents showing stock movements and sales, along with sales tax assessments, to support their claim of emergency cash sales. Revenue's Contentions: The Revenue argued that the First Appellate Authority and the Tribunal accepted the assessee's explanation without any material to prove it. They contended that the cash book figures were not reflected in the sales register, and the AO correctly treated the Rs. 60 lakhs as unaccounted cash. The Revenue also pointed to corrections in the extracts of accounts.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Ramachandran Nair, J. The question raised in the department appeal is whether the Tribunal was justified in confirming the cancellation of the addition of Rs.60 lakhs in the assessment of the respondent - assessee.
We have heard the Standing Counsel for the appellant and Adv.K.Srikumar appearing for the respondent. The department has a case that the assessee inflated sales in the cash book which is substantially at variance with the sales register, in as much as the difference in cash received is Rs.10 lakhs each on six occasions. Sixty lakhs rupees was deposited by the assessee in the bank account. The Assessing Officer found that the figures shown as received in the cash book are not reflected in the corresponding sales register and therefore, the amount of Rs.60 lakhs was stated as I.T.Appeal No.1133/2008 2 unaccounted cash introduced as business income. However, the First Appellate Authority as well as the Tribunal accepted the explanation that emergency cash sales are made for deposit in bank to make payments to suppliers like SAIL. The contention of the standing counsel is that the First Appellate Authority as well as the Tribunal accepted the explanation without any material to prove the same. Before us, the counsel appearing for the respondent produced documents showing stock movements and sales made along with the sales tax assessment.
After hearing both sides and after going through the documents produced, we feel orders were passed by the First Appellate Authority as well as the Tribunal without verifying the records, but by merely accepting the assessee's explanation. If the department's case that the sales register contains the entire details of quantity and the value for sales made, necessarily, the cash accounted in the cash register should show the full amount received.
I.T.Appeal No.1133/2008 3 The Standing Counsel appearing for the department produced copies of the extracts of accounts taken which show corrections in the first two figures. The counsel appearing for the respondent-assessee refuted the allegations and contended that the corrections were not made to introduce any black money in business. Since the Tribunal has not verified the stock register or the stock movement documents to ascertain whether the assessee had the physical stock as on the dates of the alleged cash sales of Rs.60 lakhs, Rs.10 lakhs each of 6 days, we feel the matter requires detailed consideration at the hands of the Assessing Officer himself. We, therefore, allow the appeal by setting aside the orders of the Tribunal and the First Appellate Authority and remand back the matter to the Assessing Officer for the assessee to establish the claim of stock availability, cash sales, payment received, monthly returns filed and payment of sales tax with related documents. If the assessee proves the transactions before the Assessing Officer, that stocks were available for I.T.Appeal No.1133/2008 4 making the cash sales and that there were cash sales over and above the cash sales found by the department in the sales register, then the Assessing Officer delete the addition or otherwise sustain the addition. C.N.RAMACHANDRAN NAIR JUDGE K.SURENDRA MOHAN JUDGE
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