2011 (11) TMI 760 - AT - Income Tax

Penal proceedings u/s 271(1)(c) - Held that - There can be no addition on any account and, consequently, the stand of the Ld. CIT (A) in sustaining 50% of ₹ 1.05 crores requires to be deleted. It is ordered accordingly. In a nut-shell, the addition of ₹ 1.05 crores made by the AO u/s 69C of the Act is deleted. The other grievance of the appellant being that the Ld. CIT (A) had erred in not allowing consequential higher deduction u/s 80HHC of the Act. Penalty deleted.

Summary

Issues Involved:
1. Addition of Rs. 52.95 lakhs under Section 69 of the Income Tax Act.
2. Higher deduction under Section 80HHC of the Income Tax Act.
3. Deletion of addition of Rs. 52.95 lakhs out of Rs. 1.05 crores made by the Assessing Officer (AO) on account of bogus purchases under Section 69C of the Income Tax Act.

Detailed Analysis:

I. Addition of Rs. 52.95 lakhs under Section 69 of the Income Tax Act:

The appellant firm contested the addition of Rs. 52.95 lakhs made by the AO under Section 69, claiming the purchases were genuine. The AO had identified purchases of diamonds worth Rs. 1.54 crores from 12 parties, but upon verification, deemed these transactions fictitious. The AO's conclusion was based on statements from the parties denying the sales and the immediate cash withdrawals after payments. The AO added the entire amount, less commission charges, as unexplained expenditure.

The CIT (A) partially agreed with the AO but allowed a 50% deduction of the unverified purchases, citing that exports were made, foreign exchange was earned, and no defects were found in the books of accounts. However, the appellant argued that if the purchases were bogus, the corresponding sales should also be excluded from the trading results. The appellant provided affidavits from the suppliers confirming the transactions, which were not adequately challenged by the Revenue.

The Tribunal, referencing similar judicial precedents, concluded that the appellant maintained proper records of purchases and sales, and the payments were made through cheques. The Tribunal found no justification for the addition, emphasizing that the Revenue failed to prove that the payments came back to the appellant. Consequently, the Tribunal ordered the deletion of the entire addition of Rs. 1.05 crores made by the AO under Section 69C.

II. Higher Deduction under Section 80HHC of the Income Tax Act:

The appellant claimed that the CIT (A) erred in not allowing a higher deduction under Section 80HHC. However, this issue was not raised before the CIT (A). The Tribunal found no infirmity in the CIT (A)'s order on this matter but allowed the appellant to approach the AO for redress.

III. Deletion of Addition of Rs. 52.95 lakhs out of Rs. 1.05 crores made by the AO on account of Bogus Purchases under Section 69C of the Income Tax Act:

The Revenue's appeal contested the deletion of Rs. 52.95 lakhs by the CIT (A). However, since the Tribunal had already decided to delete the entire addition of Rs. 1.05 crores made by the AO under Section 69C, the Revenue's appeal became redundant and was dismissed.

Conclusion:

(i) The appellant's appeal (ITA NO.1827/05) was partly allowed, with the deletion of the entire addition of Rs. 1.05 crores made by the AO under Section 69C.
(ii) The Revenue's appeal (ITA NO.1954/05) was dismissed.