PCIT Vs Param Dairy Ltd. (Delhi High Court)
This case involves an appeal by the Principal Commissioner of Income Tax (PCIT) against an order by the Income Tax Appellate Tribunal (ITAT), which had deleted an addition of ₹23,03,77,859 made by the Assessing Officer (AO) under Section 69C read with Section 40A(3) of the Income Tax Act, 1961. The AO had treated the “Tanki Milk” purchases made by Param Dairy Ltd., a milk and milk product manufacturer, as bogus due to large cash transactions with traders, not farmers, discovered during a search and seizure operation. The PCIT argued that these cash purchases, exceeding ₹20,000, violated Section 40A(3) and Rule 6DD of the Income Tax Rules, 1962, as the assessee failed to provide verifiable details of the traders. The PCIT also argued that the ITAT erred in overlooking the fact that the milk purchases were made through traders, not farmers, in cash, and that the rates given to Tanki Milk purchases were significantly lower than the regular milk purchases. The PCIT stated that the ITAT failed to correctly assess the evidence and wrongly shifted the burden of proof to the department.
The ITAT, however, ruled that the “Tanki Milk” purchases were duly recorded in the assessee’s books of accounts and reflected in audited financial statements. The ITAT acknowledged the practical challenges faced by the assessee in maintaining individual accounts for numerous farmers supplying milk. It noted that the assessee maintained detailed records of milk collection, quality testing, and payments, despite the significant cash transactions. The ITAT accepted the assessee’s explanation that a common entry for milk purchases was made to streamline accounting processes. The ITAT also accepted the assessee explanation as to why substantial cash payments were being made. The ITAT concluded that the source of the purchases was established, and therefore, the addition under Section 69C was unjustified. The Delhi High Court, in reviewing the case under Section 260A of the Income Tax Act, which limits appeals to substantial questions of law, found no perversity or manifest error in the ITAT’s order. The High Court emphasized that the ITAT is the final arbiter of facts and that its findings, based on the material on record, should not be disturbed unless irrational or perverse. The High Court dismissed the PCIT’s appeal, concluding that no substantial question of law arose, and upheld the ITAT’s decision to delete the addition.
