2010 (4) TMI 872 - AT - Income Tax

Penalty u/s 271(1)( c ) - unproved cash purchases - assessee s books of account had not been properly maintained and he has not discovered any specific amount of concealed income - HELD THAT - The assessee has honestly produced the relevant materials and evidence available with it to prove the correctness of the books of account. AO not accepted the genuineness of the transactions since the AO wanted inward Register and stock registers and the AO not discovered any positive material of inflating of purchases. There were certain insertion of entries in the cash book and also correction in the cash balance made by the assessee in its books of account and according to AO these books of account of the assessee are not reliable. This finding is enough to make additions in the assessment proceedings but that itself is not enough to sustain the penalty. It is to be true that even in cases of estimation or in case of best judgment penalty is leviable. But there should be finding has to be recorded that the difference in the income return and the income assessed is due to the fraud or gross or wilful neglect on the part of the assessee. In the instant case the lower authorities have not recorded any such findings. The books of account of the assessee not wholly amenable to verification. That at best can only lead to inference that the result shown by the assessee are inconclusive. But that is far from saying that there is any fraud or gross or wilful neglect on the part of the assessee. There may be justification for making addition to the assessment; there was no justification for imposing penalty because the department had not established that what was added by them in the assessment represented the income of the assessee. The penalty order should be self-contained one the findings that there has been concealment or furnishing of inaccurate particulars of income recorded in the assessment proceedings cannot automatically transferred to the penalty order and the concealment or furnishing of inaccurate particulars as specifically required to be recorded in the penalty order. Failure in this regard vitiates the validity of the penalty order itself. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.
2. Examination of the genuineness of cash purchases claimed by the assessee.
3. Evaluation of the evidence provided by the assessee to support the purchases.
4. Determination of whether the assessee concealed income or furnished inaccurate particulars.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961:
The appeal by the assessee challenges the order of the CIT(A) confirming a penalty of Rs. 15,00,000 under section 271(1)(c) for the assessment year 1989-90. The penalty was levied due to an addition of Rs. 25,88,026 made on account of bogus cash purchases. The Tribunal had previously set aside the matter to the Assessing Officer with directions to reframe the assessment. In the fresh assessment, the Assessing Officer repeated the earlier additions and initiated penalty proceedings for concealment under section 271(1)(c). The CIT(A) upheld the penalty, leading to the current appeal.

2. Examination of the genuineness of cash purchases claimed by the assessee:
The Assessing Officer found several discrepancies in the assessee's books of account, noting interpolations and corrections. The assessee claimed cash purchases of Rs. 25,88,026 on the last day of the accounting year, which the Assessing Officer found to be unsupported by evidence. The assessee's explanation that advances were given to the Purchase Manager and settled on the last day was found to be false. The Assessing Officer observed that the assessee failed to produce the raw-material receipt register/stock register for verification. Additionally, the purchases from outstation parties were not confirmed by the sellers, further casting doubt on their genuineness.

3. Evaluation of the evidence provided by the assessee to support the purchases:
The assessee contended that documentary evidence such as books of account, purchase bills, vouchers, confirmation letters, stock registers, and way bills were furnished to prove the genuineness of the purchases. However, the CIT(A) confirmed the addition made in the reassessment, primarily due to the assessee's failure to produce the stock register. The assessee argued that the failure to file the stock register was due to the lapse of time and that the lower authorities did not consider the exhaustive details furnished in the original assessment proceedings.

4. Determination of whether the assessee concealed income or furnished inaccurate particulars:
The Tribunal noted that for levying penalty under section 271(1)(c), it must be found that the assessee concealed the particulars of income or furnished inaccurate particulars. The onus lies on the department to prove the guilt of the assessee. The Tribunal observed that the assessee had furnished all documentary evidence to prove the purchases, including bills, vouchers, and identity of the parties. The failure to produce the inward register/stock register was due to the lapse of time. The Tribunal concluded that there was no cogent material to hold that the amount in question was the assessee's concealed income. The Assessing Officer's findings in the assessment proceedings were not conclusive for penalty purposes. The Tribunal found that the department had not established that the impugned amount represented the assessee's income or that there was fraud or gross or wilful neglect on the part of the assessee. Consequently, the penalty order was not self-contained, and the findings in the assessment proceedings could not automatically be transferred to the penalty order. The Tribunal deleted the penalty, allowing the appeal of the assessee.