2013 (2) TMI 43 - HC - Income Tax

Undisclosed sale - ITAT deleted the addition on the ground that these were accommodation hundies while these were genuine sales - Held that - This Court upheld the findings of the Tribunal that there was practice in the assessee company for raising temporary finance by raising fake hundies. As the hundies were fake as such neither there was any actual sale nor actual profit was derived by the company on its sale as such addition of the so called profit was not justified.

Summary

Issues:
- Appeal filed under Section 260-A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal regarding the addition of undisclosed sale amount.
- Dispute over whether the sales were genuine or accommodation hundies.
- Assessment proceedings for the assessment year 1984-85 involving the company's financial transactions and the authenticity of the sales.

Analysis:
The appeal before the High Court stemmed from a dispute regarding the addition of undisclosed sale amount by the Income Tax Appellate Tribunal. The appellant raised a substantial question of law challenging the Tribunal's decision to set aside the order of the CIT (A) in deleting the addition of Rs. 1,36,81,245 as undisclosed sale, arguing that these were genuine sales and not accommodation hundies. The facts of the case revealed a complex history of assessment proceedings dating back to the assessment year 1984-85, involving the company's financial records and transactions. The appellant contended that substantial amounts were debited for interest and commission on hundies, which were not reflected in the books of account, indicating the use of accommodation entries. Both the Assessing Officer and CIT (A) disbelieved the company's claim that these entries were merely accommodation entries, leading to the appeal before the High Court.

The respondent, on the other hand, argued that the company had a history of making accommodation entries, which had been the subject of a previous reference to the Court. Referring to a judgment from a previous case, the respondent contended that the Tribunal had correctly followed the Court's decision regarding the authenticity of the sales in question. The High Court examined the judgment from the previous reference and found that the Court had upheld the Tribunal's findings that the company had a practice of raising fake hundies for temporary finance, leading to the conclusion that the addition of the profit from these fake hundies was not justified. Consequently, the High Court held that no interference was required in the present appeal, dismissing the appellant's claims.

In conclusion, the High Court dismissed the appeal, stating that based on the previous judgment and the findings regarding the company's practice of raising fake hundies, the addition of the profit from these transactions was not justified. The Court found no merit in the appeal and upheld the decision of the Tribunal, emphasizing the authenticity of the sales and the lack of actual profit derived from the fake hundies.