2015 (3) TMI 1288 - AT - Income Tax

Penalty U/s 271(1)(c) - addition on rejection of books - estimated addition on probability only i.e. to plug the leakage - Held that - It is fact that the additions were confirmed by the lower authorities as well as ITAT on the basis of unverifiable/bogus purchases, for which department had collected number of evidences including statement during the course of search and seizure at M/s Laxmi Diagold Jewellers and also in case of other suppliers. The Ld. Assessing Officer had reproduced the statements of these parties in the assessment order and came to conclusion that these transactions were bogus. The Coordinate Bench has confirmed the quantum addition of ₹ 5 lacs in A.Y. 2004-05 and ₹ 2 lacs in A.Y. 2005-06 on the basis of findings given by the lower authorities The case laws referred by the assessee are not squarely applicable on facts. The explanation submitted by the assessee was not bonafide. The assessee has not correlated any sale with reference to bogus purchases made in the books of account from the various parties. The Hon ble Supreme Court in the case of Mak Data P. Ltd. Vs. CIT (2013 (11) TMI 14 - SUPREME COURT) has held that the assessee fails to offer an explanation which is bonafide and proved that all the material facts have been disclosed, penalty proceeding is justified. In the case of CIT Vs. Kalindi Rail Nirman Engineering Ltd.(2014 (4) TMI 679 - DELHI HIGH COURT) has held that even imposition of penalty on estimate is justified, are squarely applicable. Therefore, we confirm the order of the ld. CIT(A) in both the assessment years. - Decided against assessee.

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Years (A.Y.) 2004-05 and 2005-06.
2. Legitimacy of additions made on account of unverifiable/bogus purchases.
3. Applicability of legal precedents in the context of estimated additions and penalty imposition.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue in both appeals is the confirmation of penalties amounting to Rs. 1,79,375 for A.Y. 2004-05 and Rs. 73,185 for A.Y. 2005-06 under Section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (A.O.) imposed these penalties on the grounds that the assessee furnished inaccurate particulars of income by showing lesser business profit due to unverifiable purchases. The CIT(A) upheld these penalties, stating that the addition was not made on an estimate basis but specifically on account of bogus purchases. The ITAT confirmed the penalties, citing that the explanation provided by the assessee was not bona fide and the additions were based on concrete evidence of bogus purchases.

2. Legitimacy of Additions Made on Account of Unverifiable/Bogus Purchases:
The A.O. disallowed bogus purchases amounting to Rs. 2,05,14,654 for A.Y. 2004-05 and Rs. 72,20,347 for A.Y. 2005-06, based on detailed investigations, including statements recorded during search and seizure operations. The CIT(A) confirmed these additions, and the ITAT sustained partial additions of Rs. 5,00,000 for A.Y. 2004-05 and Rs. 2,00,000 for A.Y. 2005-06 to plug any leakage due to unverifiable purchases. The ITAT noted that the A.O. did not doubt the sales and upheld the rejection of books of account under Section 145(3) of the Act.

3. Applicability of Legal Precedents:
The assessee argued that penalties under Section 271(1)(c) should not be levied as the additions were made on an estimate basis. However, the CIT(A) and ITAT found this contention factually incorrect, emphasizing that the additions were due to specific bogus purchases. The CIT(A) relied on various case laws, including CIT Vs. Aero Traders Pvt. Ltd. (2010) 322 ITR 316 and CIT Vs. Zoom Communication Pvt. Ltd. (2010) 327 ITR 510, to justify the penalties. The ITAT also referenced the Supreme Court's decision in Mak Data P. Ltd. Vs. CIT (2013) 358 ITR 593 (SC) and Delhi High Court's ruling in CIT Vs. Kalindi Rail Nirman Engineering Ltd. (2014) 365 ITR 304 (Delhi), which supported the imposition of penalties even on estimated additions when the explanation provided is not bona fide.

Conclusion:
The ITAT dismissed the assessee's appeals for both assessment years, confirming the penalties under Section 271(1)(c) for furnishing inaccurate particulars of income. The ITAT upheld the findings of the lower authorities that the additions were based on concrete evidence of bogus purchases and not merely on an estimate basis. The legal precedents cited by the assessee were found not applicable to the facts of the case, and the penalties were deemed justified.