The following are four important judgements on recent controversial topics:
Maruti Securities Ltd vs. ACIT (ITAT Hyderabad)
S. 145: Even if assessee is following mercantile system, income cannot be assessed, on “real income” theory, if its collection/ receipt is not certain
(ii) The method of accounting, as followed by the assessee, does not create any income. The method of accounting only recognizes income. Income cannot be taxed on hypothetical basis, and it is only the real income that is to be brought to tax. When the principal itself is overdue and not collected, there is no basis for making out a case that interest income would be collectable with certainty. Even where an assessee is following the mercantile system of accounting, it is only accrual of real income which is chargeable to tax, that accrual is a matter to be decided on commercial belief having regard to the nature of business of the assessee and character of the transaction. Accordingly, for the purpose of determining whether there has been accrual of real income or not, recourse is to be made to ascertain the nature of business and character of the transaction and the realities and peculiarities of the situations (Godhra Electricity 225 ITR 746 (SC), Excel Industries Ltd 358 ITR 295 (SC) & UCO Bank 237 ITR 889 (SC) followed)
U.P. State Industrial Development Corp (UPSIDC) vs. DCIT (ITAT Lucknow)
S. 143(2)(ii): Fact that case is selected for scrutiny under CASS does not mean s. 143(2) notice & assessment order are void for non-application of mind by AO
The entire jurisprudence in respect of tax administration such as principle of natural justice etc. are with the sole object of ensuring that the tax payer is not unduly harassed by the tax department having almighty power of state. In order to make tax administration and collection friendly to tax payer, some steps have been taken by the tax administration/Government although much work is still to be done in this regard. Some of these steps are that it is made a rule that tax returns can be filed in a paper less manner in order to improve voluntary compliance by the tax payer and also to reduce the burden of filing voluminous documents along with the tax return. This is a big relief to the tax payer but this has to be ensured that there are some deterring measures so that no undue advantage is taken by any tax payer of this liberal policy of the Government. Even these deterring measures are to be such that they cause minimum harassment to the tax payer. Therefore, scheme had been devised that only very small percentage of total tax returns will be scrutinized by the department and generally it is about 2% to 3% of the total tax returns filed in a year. When it is seen that the return is to be filed by the assessee in paperless manner and still there has to be some deterring measure to prohibit the taxpayer from adopting the habit of tax evasion/avoidance, it was decided that there should be scrutiny in a small number of cases.
CIT vs. Nangalia Fabrics Pvt. Ltd (Gujarat High Court)
S. 68: Purchases cannot be treated as “bogus” only on the ground that the suppliers are not traceable
The Tribunal has found that the purchases are genuine because they are supported by bills, entries in the books of account, payment by cheque and quantitative details. The AO did not find any inflation in purchase price or inflation in consumption or suppression the production. The addition had been made only on the ground that the parties are not traceable. The assessee had made payment through crossed cheques and AO did not find that payment made came back to assessee. The ratio of creditors to purchases is normal considering the past records of the assessee. The creditors were outstanding owing to liquidity as assessee is also required to get credit in respect of sales also. Even otherwise, section 68 is not attracted to amounts representing purchases made on credit. This is a finding of fact which does not give rise to a question of law.
DCIT vs. Rajeev G. Kalathil (ITAT Mumbai)
S. 68: Fact that alleged supplier is not traceable and has been termed a “hawala dealer” by the VAT authorities is not sufficient to treat the purchases as “bogus”
The fact that the supplier is declared as a “Hawala dealer” by the VAT department is a good starting point for making further investigation and taking it to its logical end. However, suspicion of highest degree cannot take place of evidence. The AO ought to have called for details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. No such exercise was done. There is nothing in the order of the AO about the cash trail. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. Proof of movement of goods is not in doubt. In the absence of sufficient evidence, the purchases cannot be treated as bogus