Himachal Pradesh High Court upholds penalty under IT Act

Himachal Pradesh High Court upholds penalty under IT Act

Rejects the respondent's appeal based on the fabrication of accounts

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

The assessing officer (AO) found that the respondent-assessee JMJ Essential Oil Company had shown cash sales of Rs.3 crores. It remitted a VAT of Rs.12 lakhs to the sales tax authorities on the cash sales made to different parties during the month of September 2006.

On being enquired by the AO, the respondent was unable to justify the cash sales.

The bench comprising Justice Sabina and Justice Satyen Vaidya observed that merely because the respondent had got orders from the VAT authority, it did not mean the cash sales were genuine. By paying a sum of Rs.12 lakhs as VAT on cash sales within the state, the respondent had credited Rs.3 crores cash to its books.

The cash bills were of a specific amount of Rs.6 lakhs and Rs.3 lakhs only. Moreover, the amount had been transferred to the accounts of the partners as cash withdrawals in the month of September 2006 itself.

The AO concluded that it was a clear case of fabrication of accounts by the respondent. It was liable to pay a penalty under the IT Act.

But the tribunal set aside the finding on the ground that the respondent had substantiated its explanation by sales bills, tax challan and tax order passed by the VAT authorities. The tribunal was mainly influenced by the fact that since the VAT authorities had accepted the cash transactions, the cash sales put up by the respondent were genuine.

However, the court ruled that merely because the VAT authorities accepted the cash sales set up by the respondent, it was not sufficient ground to hold that it was genuine.