The case of DCIT Central Circle-14 vs. Param Dairy Ltd (ITA 5027/DEL/2019) revolves around tax disputes for the assessment year 2012-13. The case was filed on 31st May 2019, and the final order was pronounced on 19th November 2019 by the Income Tax Appellate Tribunal (ITAT), Delhi.
Param Dairy Ltd., a prominent manufacturer and exporter of dairy products such as skimmed milk powder, full cream milk powder, dairy whitener, milk fat, paneer, liquid milk, and desi ghee, was subjected to a search and seizure operation under Section 132 of the Income-tax Act on 28th February 2014. This operation targeted the Param and Rama Group. Following the search, a notice under Section 153A of the Act was issued to Param Dairy Ltd., requiring them to file a return of income.
In response, Param Dairy Ltd. stated that the previously filed return should be treated as the return filed in response to the notice under Section 153A. This led to the commencement of assessment proceedings, resulting in several contentious additions by the Assessing Officer (AO).
The assessment order, framed under Section 143(3) read with Section 153A of the Act, included the following key additions:
The appeal was heard by a bench comprising Shri N.K. Billaiya, Accountant Member, and Ms. Suchitra Kamble, Judicial Member. Both the appellant and respondent presented their arguments, with the counsel for Param Dairy Ltd. emphasizing that the additions were not based on any incriminating material found during the search.
The counsel for Param Dairy Ltd. argued that the additions were not supported by any new material found during the search, thus making them illegitimate under the Act. They referenced the judgments of the Hon’ble High Court of Delhi in Kabul Chawla and the Hon’ble Supreme Court in Singhad Technical Educational Society to support their position.
The Tribunal examined the assessment orders and noted that the additions were indeed not based on any new material. The Tribunal reviewed past assessments and financial statements, highlighting that the purchases and expenses were part of the audited financial statements submitted prior to the search.
The Tribunal quashed the assessment orders for the assessment years 2008-09 and 2009-10, concluding that the additions were not based on any new evidence or incriminating material found during the search. For the subsequent assessment years 2010-11 to 2012-13, it was determined that the period for issuing notice under Section 143(2) had expired before the date of the search, thus rendering those assessments as final and not open to scrutiny without new material evidence.
The Tribunal, therefore, quashed the assessments made under Section 143(3) read with Section 153A of the Act for being bad in law and unsupported by incriminating material. This judgment underscores the importance of having substantive evidence directly resulting from search operations to justify additions in such assessments.
The decision sets a significant precedent, reinforcing the principle that assessments based on search operations must be grounded in solid, incriminating evidence. This protects taxpayers from arbitrary and unsupported additions, ensuring that the authorities follow due process and legal standards.
During the course of assessment proceedings, the Assessing Officer had made several additions based on various grounds. The primary contention was that these additions were not substantiated by any incriminating material found during the search. The counsel for the assessee, Param Dairy Ltd., argued that the assessment orders were void ab initio and without jurisdiction. They contended that the additions were not based on any new evidence and relied on previous judicial decisions to support their case.
Milk Purchases Tanki: The Assessing Officer had treated certain purchases of milk in cash under the head ‘Milk Purchases Tanki’ as suspicious and made additions accordingly. However, the Tribunal found that these purchases were part of the audited financial statements and had been scrutinized in previous assessments.
Disallowance of Commission Payments: Another significant addition was the disallowance of commission payments under Section 37 of the Act. The Tribunal noted that these expenses were documented in the audited accounts and there was no new material to justify the disallowance.
Unexplained Sundry Creditors: The Assessing Officer had also disallowed certain balances of sundry creditors, alleging them to be suppressed profit elements. The Tribunal, however, found no incriminating material to support this addition.
Recharacterization of Agricultural Income: The recharacterization of agricultural income as income from other sources was another addition made by the Assessing Officer. The Tribunal found that this addition was not based on any new evidence found during the search.
The Tribunal’s decision in this case emphasizes the need for assessments based on search operations to be backed by substantive and incriminating evidence. It ensures that taxpayers are protected from arbitrary additions and that the authorities adhere to the principles of due process and legal standards. This case sets a significant precedent for future assessments and highlights the importance of transparency and accountability in tax proceedings.
Overall, the judgment in DCIT Central Circle-14 vs. Param Dairy Ltd for the assessment year 2012-13 serves as a crucial reminder of the legal standards required for search-based assessments and the necessity of evidence-backed additions.
DCIT Central Circle-14 vs. Param Dairy Ltd: ITA 5027/DEL/2019 for the 2012-13 Assessment Year
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