JHS Svendgaard Laboratories Ltd. Vs DCIT (ITAT Delhi)
Borrowed Satisfaction Exposed: ITAT Quashes Reassessment and Deletes Bogus Sales & Purchase Additions
The Delhi Bench “E” of the ITAT, in JHS Svendgaard Laboratories Ltd. v. DCIT (AY 2018-19), allowed the assessee’s appeal in full, quashing the reassessment itself and deleting additions on alleged bogus sales commission and selective bogus purchases.
The reassessment was initiated on the basis of Investigation Wing inputs alleging accommodation entries of ₹5.52 crore, purportedly involving M/s Veekay Enterprises and certain intermediaries. The AO proceeded to (i) estimate 2% commission of ₹11.05 lakh on alleged bogus sales, and (ii) disallow ₹88.95 lakh of purchases from M/s Royal International, while accepting the remaining purchases from the same party. The CIT(A) upheld the reassessment and additions.
The Tribunal held that the very reopening was bad in law, as the AO had acted on borrowed satisfaction and mechanically reproduced Investigation Wing information without any independent verification or application of mind. The reasons recorded under section 148A(b) suffered from serious factual inconsistencies, including confusion between different parties (Vikas Jain vs. Jitender), absence of any live nexus between the information and the assessee’s transactions, and even incorrect quantification of alleged sales. Such vague and unverified material, the ITAT held, cannot form the basis of a valid “reason to believe”. On this ground alone, the reassessment was liable to be quashed.
On merits also, the Tribunal found the additions wholly unsustainable. The 2% commission addition was held to be purely notional, unsupported by any evidence of flow of funds or receipt of commission, contrary to the settled principle that only real income can be taxed. The alleged bogus purchases disallowance was found to be arbitrary and internally inconsistent, as the AO selectively disallowed a portion of purchases from the same supplier while accepting the rest, despite complete documentary evidence including invoices, transport documents, banking payments, stock records and GST compliance. Mere suspicion, HSN classification differences, or absence of adverse GST action could not justify the addition.
Accordingly, the ITAT allowed the assessee’s appeal, quashed the reassessment, and deleted both additions, reaffirming that reassessment cannot rest on vague investigation inputs and additions cannot be made on estimates or conjectures once transactions are duly supported by records
FULL TEXT OF THE ORDER OF ITAT DELHI
