This case involves an appeal by Dristi Textiles Pvt. Ltd., a company based in Ghaziabad, against the Income Tax Officer of Ward-1(2), Ghaziabad. The appeal concerns the assessment year 2014-15, with the final tribunal order pronounced on August 3, 2023.
The company was under scrutiny for alleged bogus transactions in fabrics trading. The initial scrutiny was triggered by discrepancies noted in the company’s stock records and the absence of certain expected expenses such as freight and cartage, which raised suspicions about the genuineness of the transactions. The case escalated to the tribunal after the Commissioner of Income Tax (Appeals) upheld the assessing officer’s decision to add a significant amount based on an assumed net profit percentage of the turnover.
The appellant’s main contention was the inappropriate application of Section 68 of the Income Tax Act, which deals with unexplained cash credits. The company argued that the additions were made arbitrarily without a proper basis in actual transactional evidence or accounting discrepancies that would justify such conclusions.
The tribunal heard arguments regarding the nature of the transactions with specific parties, the method of accounting used by the company, and the overall business context in which these transactions occurred. It was noted that all transactions were conducted through banking channels, and no specific irregularities were pointed out in the transaction vouchers.
The tribunal found that the assessing officer and the CIT(A) had erred in their approach by treating these transactions as bogus without substantial evidence. It was particularly noted that if transactions were to be considered bogus, then an addition based on a percentage of net profit was not appropriate. Instead, any dubious transactions should have been fully scrutinized and, if found non-genuine, treated as such in their entirety.
The tribunal decided in favor of Dristi Textiles, allowing the appeal and setting aside the additions made by the lower tax authorities. This decision emphasized the need for the tax authorities to base their assessments on concrete evidence and maintain consistency in their rationale for adjustments.
The resolution of ITA 912/DEL/2019 underscores the judicial oversight on tax assessments, ensuring that such assessments are not only based on clear evidence but also adhere strictly to legal standards. This case serves as a pertinent example of how the judiciary can correct misapplications of tax law, providing relief to businesses facing unjust tax claims.
The order was pronounced openly in court, reinforcing the transparent judicial process in resolving complex tax disputes.
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