PCIT Vs Nandkishor Huaschand Jalan (Gujarat High Court)
The Revenue appealed against the Income Tax Appellate Tribunal’s order dated 20.04.2017 concerning addition of Rs.2,71,32,085/- towards unverifiable sundry creditors. The Assessing Officer had treated the entire outstanding creditor balance as non-genuine, reasoning that the assessee might have purchased goods in cash using unaccounted money and procured bogus bills to cover purchases corresponding to sales.
Read SC Judgment in this case: SC Upholds 25% Addition on Unverifiable Creditors in Nandkishor Jalan Case
The Commissioner of Income Tax (Appeals), however, restricted the addition to 25% of the total amount, i.e. Rs.67,83,020/-, representing the profit element, and both sides appealed to the Tribunal. The Tribunal rejected both appeals. Before the Gujarat High Court, the Revenue relied upon the decision in N.K. Industries Ltd. v. Dy. C.I.T., reported in (2016) 72 Taxmann.com 289, contending that the entire amount could be added.
The Court distinguished N.K. Industries on the factual basis that, in that case, the entire purchases were found to be bogus and the corresponding addition of the entire purchases had the effect of increasing the assessee’s profit by the corresponding figure. In the present case, the Court held that the Commissioner (Appeals) and Tribunal had correctly restricted the addition to 25%, following the judgment in Vijay Proteins Ltd. v. Commissioner of Income Tax, reported in 58 ITD 432.
