Case Law Details
PCIT Vs Forum Sales Pvt. Ltd. (Delhi High Court)
Introduction: In a significant ruling, the Delhi High Court in the case of PCIT Vs Forum Sales Pvt. Ltd. has set a precedent concerning the addition of income without rejecting the books of accounts under the Income Tax Act, 1961. This decision comes against the backdrop of appeals filed by the Revenue against the Income Tax Appellate Tribunal (ITAT)’s order for the Assessment Years (AY) 2013-14 and 2014-15.
Detailed Analysis: The crux of the matter revolved around various additions made by the Assessing Officer (AO) to the total income of Forum Sales Pvt. Ltd., a company engaged in the business of gift items and novelties, among other things. Following a search and survey operation under Section 132/133A, and subsequent notices under Section 153A and Section 143(2), the AO assessed additional incomes based on various grounds including unaccounted profits, disallowance of expenses, and inflated purchases.
The case saw a pivotal development as the Commissioner of Income Tax (Appeals) [CIT (A)] and subsequently, the ITAT, delved into whether such additions were justifiable without rejecting the company’s audited books of accounts. The CIT (A) and ITAT sided with Forum Sales Pvt. Ltd., deleting significant portions of the additions on grounds that the AO did not object to the genuineness of the books or specified any discrepancies warranting the said additions.
Legal Interpretation and Implications: The High Court’s dismissal of the Revenue’s appeals was grounded in a critical interpretation of Section 145(3) and Section 144 of the Income Tax Act. Section 145(3) pertains to the method of accounting and grants the AO the authority to reject the books of accounts if found incorrect or incomplete. Section 144 outlines the procedure for ‘best judgment assessment,’ which can only proceed upon the rejection of books under Section 145(3).
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