2015 (4) TMI 1202 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition disallowance of additional price for purchase of sugarcane - Held that - It has been clearly noted that increased prices was never paid to the farmers but adjusted in the share capital account. It is also noted that such increase was granted in the years of profits. If assessee really wanted to give benefit to the farmers, we fail to understand why money was not paid to the farmers. If money was to be adjusted in the share capital account then consent of farmers should have been obtained by way of general body meeting which was never done and the decision to convert to increased price was ratified only on 26.6.1995 These factors clearly shows that assessee has merely tried to evade tax by showing extra expenditure on account of enhance price for sugarcane. No doubt the Hon ble Supreme Court in the case of CIT v Reliance Petroproducts Pvt Ltd (2010 (3) TMI 80 - SUPREME COURT ) held that if a disclosure is made then it cannot be said that assessee has concealed particulars of the income. This is not a case of mere disallowance of expenditure or disallowance of a particular deduction rather it is a case of disallowance of bogus expenditure which has been claimed just to reduce the profits earned by the assessee. Therefore, in our opinion, the Ld. CIT(A) has correctly confirmed the levy of penalty u/s 271(1)(c) of the Act and we uphold his action. Appeal of the assessee is dismissed.

Summary

Issues Involved
1. Confirmation of levy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Disallowance of additional price for the purchase of sugarcane amounting to Rs. 2,53,23,741.

Issue-Wise Detailed Analysis

1. Confirmation of Levy of Penalty under Section 271(1)(c)
The primary issue in this appeal is the confirmation of the levy of penalty under Section 271(1)(c) of the Income Tax Act on the assessee for the disallowance of an additional price for the purchase of sugarcane. The penalty was levied due to the addition made by the Assessing Officer (AO) amounting to Rs. 2,53,23,741.

The AO inspected the assessee's premises and books of accounts, discovering entries in the "Share Deduction Account" and corresponding debit entries in the Sugarcane Account. The AO disallowed the deduction on several grounds, including the backdated entry to reduce tax liability, lack of actual payment to farmers, and the unilateral decision by the Board of Directors to increase the sugarcane price without informing the farmers.

The penalty proceedings under Section 271(1)(c) were initiated, and the AO concluded that the explanation provided by the assessee was false, primarily because the decision to increase the cane price was made to evade tax rather than benefit the cane growers. The AO noted that the increased price was never paid to the farmers but adjusted in the share capital account, and the farmers were not informed about this decision.

2. Disallowance of Additional Price for Purchase of Sugarcane
The assessee argued that the increase in the sugarcane price was due to the higher cost of production and to prevent farmers from switching to other crops. The decision was taken by the management and later approved by the Board. However, the AO and the CIT(A) found that the explanation was not bonafide, and the increase in price was only in the years of profits, indicating an attempt to reduce taxable profits.

The CIT(A) confirmed the penalty, noting that the assessee failed to substantiate the reasons for the enhanced payments, and the explanation given was not bonafide. The Tribunal upheld this decision, emphasizing that the action of the assessee was not bonafide and was a device to avoid payment of dues to the exchequer.

The Tribunal referred to the decision of the Hon'ble Punjab & Haryana High Court, which confirmed the findings that the assessee's action was not bonafide and was employed to avoid payment of taxes. The High Court noted that the assessee had been fixing the final price and creating additional liability only in years of substantial profits, without actual payment to the sugarcane growers.

The Tribunal concluded that the claim of expenditure was bogus and made to reduce profits. It was noted that the increased price was never paid to the farmers, and the decision to convert the increased price was ratified only much later, indicating an attempt to evade tax.

The Tribunal distinguished the case from the decision of the Hon'ble Supreme Court in CIT v. Reliance Petroproducts Pvt. Ltd., noting that the present case involved a bogus claim rather than a mere disallowance of expenditure.

Conclusion
The Tribunal upheld the confirmation of the levy of penalty under Section 271(1)(c) and dismissed the appeal of the assessee, concluding that the claim of expenditure was not bonafide and was made to evade tax. The decision emphasized that the increased price was never paid to the farmers, and the action was a device to reduce taxable profits.