2010 (6) TMI 522 - AT - Income Tax

Penalty Addition of income - Bogus purchase Unexplained cash credit Brokerage expense - In respect of bogus purchases of Rs.3,75,984 the assessee claimed that these purchases are made from M/s Chandrakala Prints for Rs.1,92,036/- and from M/s Neminath Silk Mills for Rs. 1,83,948 - Payments were claimed to have been made through account payee cheques - On perusal of purchase and sale bills, it is seen that there is no difference in the quantity and quality of goods and contention of ld. AR is found to be correct - it is also seen that assessing officer has also failed to bring any evidence on record which indicates that assessee has not made purchases from above two parties - Accordingly that addition made by the AO is hereby deleted Regarding bogus gift - After carefully going through the observations of the AO and the arguments of ld. AR, it is seen that all the donors who made gifts to assessee s minor sons are found to be parties of no means by the ld. AO - It is also seen that assessee has failed to produce the donors before AO and thus we do not find any reason to interfere with the findings of CIT(A) and accordingly the addition is confirmed Appeal is dismissed In respect of bogus expenses - After considering the entire facts of the case, we are of the opinion that ld. CIT(A) has rightly confirmed the action of AO in making addition as assessee has failed to prove the nature of service rendered by the broker - Thus, the genuineness of expenditure is not fully verifiable and therefore, addition is confirmed Regarding penalty u/s 271(1)(c) - The case of the assessee is also covered in terms of Explanation -1(B) if we treat that explanation furnished by the assessee during the course of assessment proceedings as the explanation assessee could have furnished in response to show cause notice before levy of penalty - It was held that explanation raised rebuttable presumption and the burden which is cast on an assessee is akin to a civil burden which may be discharged on a preponderance of probabilities - S. 271(1)(c) applies where the assessee has concealed the particulars of his income or furnished inaccurate particulars of such in - . In the result, the appeal filed by the assessee is partly allowed

Summary

Issues Involved:
1. Penalty under section 271(1)(c) of the Income Tax Act.
2. Addition on account of bogus purchases.
3. Addition on account of unexplained cash credit.
4. Addition on account of brokerage expenses.

Detailed Analysis:

1. Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in this case was the confirmation of a penalty of Rs. 2,08,380/- under section 271(1)(c) of the Income Tax Act by the CIT(A). The Tribunal had to determine whether the penalty was justified based on the additions made during the assessment proceedings.

2. Addition on Account of Bogus Purchases:
- The assessee declared purchases from M/s Chandrakala Prints and M/s Neminath Silk Mills, supported by account payee cheques. However, the AO found these purchases to be bogus as the parties did not respond to inquiries, and the cheques were traced to different entities.
- The Tribunal, in the quantum addition appeal, deleted this addition, stating that the assessee resold the goods immediately on a commission basis, and there was no evidence to prove the purchases were not genuine. The Tribunal concluded that the AO failed to bring any evidence indicating that the purchases were not made from the stated parties.
- Consequently, the penalty related to this addition was deleted, following the principle that if the addition is deleted, the corresponding penalty cannot be sustained.

3. Addition on Account of Unexplained Cash Credit:
- The AO added Rs. 2,45,000/- to the assessee's income, citing unsecured loans from the assessee's minor sons, which were claimed to be gifts. The AO found that the donors were not credible, and the assessee failed to provide any substantial evidence or produce the donors for verification.
- The Tribunal upheld this addition, noting that the assessee did not substantiate the explanation and failed to disclose all material facts, thus confirming the addition.
- The penalty for this addition was upheld under Explanation 1 to section 271(1)(c), as the assessee failed to provide a bona fide explanation and did not disclose all necessary facts.

4. Addition on Account of Brokerage Expenses:
- The AO added Rs. 40,154/- to the assessee's income, treating the brokerage expenses as bogus due to lack of evidence and supporting documents. The payments were made in cash and supported by self-made vouchers.
- The Tribunal confirmed this addition, stating that the assessee failed to prove the nature of services rendered by the brokers.
- However, the penalty for this addition was canceled by the Tribunal, following the Supreme Court's decision in CIT vs. Reliance Petro Products, which held that making an unsustainable claim does not amount to furnishing inaccurate particulars of income.

Conclusion:
- The penalty related to the addition for bogus purchases was deleted as the addition itself was deleted by the Tribunal.
- The penalty related to the addition for unexplained cash credit was upheld as the assessee failed to substantiate the explanation and did not disclose all material facts.
- The penalty related to the addition for brokerage expenses was canceled as making an unsustainable claim does not amount to furnishing inaccurate particulars of income.

Result:
The appeal filed by the assessee was partly allowed. The penalty was confirmed only in respect of the bogus gifts, and the AO was directed to calculate the minimum penalty leviable for this addition. The penalties for the other two additions were canceled.