In JHS Svendgaard Laboratories Ltd. v. Deputy Commissioner of Income Tax, Central Circle-31, New Delhi, the Delhi Bench of the Income Tax Appellate Tribunal examined the validity of reassessment proceedings initiated for Assessment Year 2018–19 and the sustainability of additions made on account of alleged bogus sales and purchases.

The reassessment was initiated on the basis of information received from the Investigation Wing alleging accommodation entries involving certain third parties. The Tribunal found that the Assessing Officer had merely reproduced such information in the notice issued under Section 148A(b) without independently verifying its accuracy or establishing any live and rational nexus between the information and the assessee’s actual transactions. The notice itself contained internal inconsistencies regarding the identity of parties and incorrect quantification of alleged transactions, demonstrating complete non-application of mind. The Tribunal held that reopening based on vague, unverified, and borrowed satisfaction is invalid in law and accordingly quashed the reassessment proceedings.

On merits, the Tribunal deleted the addition made by estimating 2% commission on alleged bogus sales, observing that the assessee had furnished complete documentary evidence including tax invoices, GST returns, transport documents, confirmations, and bank realization. No defect was found in the books of account, nor was any evidence brought on record to show receipt of commission or flow of unaccounted money. Relying on settled law, including the Third Member decision in JMK Exports v. DCIT and the principle laid down by the Supreme Court in CIT v. D.A. Raman & Co., the Tribunal reiterated that income tax can be levied only on real income and not on hypothetical or estimated income.

The Tribunal also deleted the disallowance of alleged bogus purchases made from M/s Royal International, noting that the Assessing Officer had selectively disallowed only a portion of purchases while accepting the balance from the same supplier. The purchases were fully supported by invoices, delivery documents, banking payments, stock records, and GST compliance, and no adverse material was brought on record to doubt their genuineness. The Tribunal held that mere suspicion, technical differences in HSN classification, or assumptions cannot justify disallowance when the transactions are otherwise verifiable and bona fide.

Accordingly, the ITAT allowed the appeal of the assessee in full, quashing the reassessment and deleting all substantive additions.

Source Link- https://itat.gov.in/public/files/upload/1767772187-tBacK3-1-TO.pdf

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