Diamond Food Products Vs CIT (Kerala High Court)
Kerala High Court held that allegation regarding bogus purchases of raw-material i.e. paddy without verification of books of accounts including stock register, ledger, etc. is not justifiable in law. Accordingly, disallowance u/s. 37(1) of the Income Tax Act set aside.
Facts- The appellant had filed its return of income declaring a total income of Rs.71,15,290/- by declaring a net profit of 0.91%. While completing the assessment, the assessing authority considered the appellant’s claim for deduction of the amount spent for purchasing paddy from small farmers and, which was used in connection with the manufacture of food products by the appellant. Although the appellant had furnished the names of 8503 persons from whom he had supposedly purchased paddy, the assessing authority found that no confirmation was received from any of those persons to support the appellant’s contention that they were the persons who supplied paddy to the appellant. The assessing authority, therefore, disallowed the deduction claimed by the appellant towards the purchase of paddy from the said persons and added this to the income declared by the appellant. For the sake of completion of the facts, we might point out that there was an inconsistency in the order of the assessing authority in the treatment of the said amount inasmuch as in one part of the assessment order he refers to the provisions of Section 40A(3) as the basis on which the additions are made whereas in a latter part of the assessment order, the disallowance is traced to Section 37(1) of the Income Tax Act.
