2005 (5) TMI 545 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) for concealment of income.
2. Justification of Bottler's support expenses of Rs. 80 lakhs.
3. Justification of Bogus purchases of Rs. 10 lakhs.
4. Applicability of penalties in cases where the returned income and assessed income are both losses.

Detailed Analysis:

1. Levy of Penalty Under Section 271(1)(c) for Concealment of Income:
The assessee filed an appeal against the CIT(A) order confirming the levy of penalty of Rs. 41,40,000 under section 271(1)(c) for the assessment year 1996-97. The assessee had declared a total income of Rs. 7,10,10,760, which was later assessed at a loss of Rs. 5,20,61,940. The Assessing Officer (AO) initiated penalty proceedings for concealment of income, primarily due to two additions: Bottler's support expenses of Rs. 80 lakhs and Bogus purchases of Rs. 10 lakhs.

2. Justification of Bottler's Support Expenses of Rs. 80 Lakhs:
The AO noted that the assessee claimed Bottler's support expenses of Rs. 80 lakhs under the head 'Distribution related cost'. Upon scrutiny, the assessee revised the computation and added back Rs. 44,50,000, reducing the claimed expenses to Rs. 23,21,527. The AO found no contractual obligation for the assessee to pay the creditors of Pure Drinks (New Delhi) Ltd., and thus, the liability was not justified. The assessee had also written back Rs. 44,50,000 in the revised computation and Rs. 19,75,876 in the subsequent financial year. The AO concluded that the provision was made to inflate the cost and consequently the loss, leading to the conclusion that the assessee furnished inaccurate particulars of income.

3. Justification of Bogus Purchases of Rs. 10 Lakhs:
The AO observed that the assessee booked an expenditure of Rs. 63,49,316 under the purchase account, including Rs. 10 lakhs payable to Pure Drinks (New Delhi) Ltd. The assessee failed to provide purchase bills or other substantiating documents. The AO noted inconsistencies in the assessee's explanations and concluded that the claim of purchases from Pure Drinks (New Delhi) Ltd. was not substantiated, leading to the addition of Rs. 10 lakhs as bogus purchases.

4. Applicability of Penalties in Cases Where the Returned Income and Assessed Income are Both Losses:
The assessee argued that penalty under section 271(1)(c) could not be levied as both the returned income and assessed income were losses. The CIT(A) and the Tribunal disagreed, relying on the decision of the Hon'ble Bombay High Court in CIT v. Chemiequip Ltd., which held that penalty could be levied even if the assessed income is a reduced loss. The Tribunal noted that the assessee had consciously withheld the revised computation and filed inaccurate particulars of income. The Tribunal also considered the amendment by the Taxation Laws (Amendment) Act, 1975, which clarified that penalty could be levied even if the concealment reduced the loss.

Conclusion:
The Tribunal upheld the AO's and CIT(A)'s findings that the assessee had filed inaccurate particulars of income and was liable for penalty under section 271(1)(c). The appeal of the assessee was dismissed, confirming the levy of penalty of Rs. 41,40,000. The Tribunal emphasized that within the jurisdiction of the Hon'ble Bombay High Court, the decision in Chemiequip Ltd. would be applicable, supporting the levy of penalty in cases where the assessed income is a reduced loss.