PCIT Vs Nandkishor Hulaschand Jalan (Supreme Court of India)
Summary: The proceedings concerned the Revenue’s challenge to the restriction of an addition relating to unverifiable sundry creditors from Rs.2,71,32,085/- to Rs.67,83,020/-, being 25% of the total addition. The Assessing Officer had confronted the assessee with various creditors having total outstanding balances of approximately Rs.2.71 crores.
Read HC Judment in this case: Gujarat HC Upholds 25% Addition on Unverifiable Creditors in Bogus Purchase Case
The assessee explained that a large number of debtors had not made payments, resulting in insufficient funds to pay the creditors, but thereafter supplied no further information. The Assessing Officer consequently disbelieved the transactions and added the entire amount, observing that the assessee might have purchased goods in cash using unaccounted money and procured bogus bills to cover purchases corresponding to sales, thereby creating unproven credits in the balance sheet.
In appeal, the Commissioner of Income Tax (Appeals) restricted the addition to the profit element of 25%, and the Tribunal rejected the appeals of both sides. The Gujarat High Court, while considering the Revenue’s appeal, held that the Commissioner (Appeals) and Tribunal had correctly limited the addition to 25%, following Vijay Proteins Ltd. vs. C.I.T., reported in 58 ITD 432.
