The assessee engaged in the business of essential oils, claimed a deduction of Rs. 85.31 crores u/s. 80-IC whereas in the course of assessment the Department found that the assessee showed cash sales of Rs. 3 crores whereon VAT of Rs. 12 Lacs was remitted. The Department found that the assessee had introduced its unaccounted income in the garb of cash sales as they pertained only to one month with cash bills of Rs. 3 lakhs and Rs. 6 lakhs transferred to partners’ account as cash withdrawals in the same month and the buying parties could not be traced. The AO levied penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income which appeal was dismissed by the CIT(A) but the ITAT allowed the appeal filed by the assessee. On an appeal by the Department to the High Court, it was held that: The assessee’s contention that the sales bills were backed by sales tax paid challans and sales tax returns and the books of accounts were also accepted by VAT Authorities was rejected by the High Court which observed that merely because the respondent had got order from the VAT Authority, did not in itself make the cash sales genuine and thereby upheld the levy penalty reversing the decision of the Tribunal. (AY.  2006-07)