PCIT Shimla Vs JMJ Essential Oil Company (Himachal Pradesh High court)
Date-20th July, 2022
Sub-Whether acceptance of cash sales by Sales-tax authorities imposes fetters on the Income-tax officer to treat the cash sales as unaccounted income and impose penalty u/s 271(1)(c) for furnishing inaccurate particulars of Income?

The assessee in this case enjoyed tax benefits u/s 80IC of the Income-tax Act,1961 in view of-the unit producing oil in the State of Himachal Pradesh producing Musk and other scented oils and thus the income was exempt u/s 80IC of the Act. During the month of September, 2006 the assessee reflected cash sales of Rs 3 crores in its accounts which amount was transferred in cash to partners and the sales was said to be retail sales of cash only in this month. On these facts the AO treated the entire amount as undisclosed income and this addition was upheld till the Supreme Court. The AO also imposed penalty u/s 271(1)(c) for furnishing inaccurate particulars of income which was deleted by the ITAT Shimla Benches mainly in view of the fact that the sales were accepted by the VAT Department as correct and the VAT was paid. In an appeal , the department argued that in view of the decision of Dharmendra Textile Processors (2008) 13 SCC 369(SC) Mens Rea is not essential. However, the assessee argued that the-said decision had no applicability in view of the decision in case of Atul Mohan Bindal and Rajasthan Spinning and weaving mills. However, finally the court allowing the appeal of the department held that simply because the sales tax authorities had accepted the books of accounts and VAT was paid, that did not impose fetters on the AO to impose the penalty for concealment of income.

A tax exempt 80IC unit having cash sale of Rs 3 crore only in one particular month- something which is not arguable unless the genuineness of the transaction can be proved to the hilt.

Ramesh Patodia
21-07-2022