2015 (1) TMI 828 - HC - Income Tax

Bogus purchases - oil cakes shown as purchases by the assessee from 33 parties were not genuine transactions - Tribunal allowed the assessee s alternative claim (in spite of assessee s purchases) to the extent of 7Rs.88,03,614/- having been made outstide assessee s books of account constituted exceptions for purposes of Rule 6 DD(j) and were not hit by Sec.40A(3) - Held that - In the present case the provisions of Section 40A(3) would not be applicable and even if they are held to be applicable, the expenditure would be covered by the exceptions provided in Rule 6DD(j) of the Rules. It is a matter of fact that the goods were not received from the parties from whom it is shown to have been purchased but, such material was received from a different source which is exclusively within the knowledge of the assessee and none else. Therefore, it is evident that the assessee had inflated the expenditure in question by showing higher amount of purchase price through the fictitious invoices in the names of 33 bogus suppliers. Considering the overall factual scenario, the Tribunal was justified in disallowing 25% of the purchase price. - Decided against the assessee Levy of penalty under Section 271(1)(c) - Held that - The only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income up to the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement u/s.132(4) and thus, the assessee was entitled to immunity under clause (2) of Explanation 5 to section 271(1)(c). - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of addition of Rs. 40,54,707/- in respect of oil recovered from rapeseeds.
2. Justification of sustaining disallowance of Rs. 27,02,752/- out of total disallowance of Rs. 93,06,366/- for bogus purchases.
3. Justification of allowing the assessee's alternative claim regarding purchases outside the books of account.
4. Justification of penalty under Section 271(1)(c) amounting to Rs. 29,51,174/-.

Issue-wise Detailed Analysis:

1. Addition of Rs. 40,54,707/- for Oil Recovered:
The Tribunal confirmed the addition of Rs. 40,54,707/- made by the Assessing Officer (A.O.) in respect of oil recovered from the crushing of rapeseeds purchased within Gujarat. The High Court upheld this decision, noting that the transactions related to oil cakes shown as purchases from 33 parties were not genuine and the sale invoices were fictitious. The Tribunal's findings were based on substantial material evidence.

2. Sustaining Disallowance of Rs. 27,02,752/-:
The Tribunal sustained the disallowance of Rs. 27,02,752/- (25% of the purchase price) out of the total disallowance of Rs. 93,06,366/-. The High Court observed that the assessee had inflated the expenditure by showing higher purchase prices through fictitious invoices. Despite the assessee's argument referencing similar cases where disallowance was reduced to 5%, the High Court found the Tribunal's decision to disallow 25% as justified based on the peculiar facts and circumstances of this case.

3. Alternative Claim for Purchases Outside Books:
The Tribunal allowed the assessee's alternative claim that purchases amounting to Rs. 88,03,614/- were made outside the books of account, constituting exceptions under Rule 6 DD(j) and not hit by Section 40A(3). The High Court agreed, noting that the materials were received and supported by various registers and books of accounts maintained by the assessee, which were not disputed by the Revenue. The provisions of Section 40A(3) were deemed inapplicable as payments were shown to have been made by "crossed cheques."

4. Penalty under Section 271(1)(c):
The Tribunal upheld the penalty of Rs. 29,51,174/- under Section 271(1)(c), but the High Court quashed this penalty. It was argued that the additions were based on mere presumption without material facts not disclosed by the assessee. The High Court referenced previous decisions, including the Apex Court's ruling, which stated that no penalty could be levied on guesswork or estimation. Consequently, the penalty was set aside.

Conclusion:
The High Court answered the three questions referred in favor of the Revenue and against the assessee, confirming the Tribunal's judgment dated 18.01.1996. However, the penalty issue raised in T.A. No.243/2002 was resolved in favor of the assessee, quashing the penalty imposed under Section 271(1)(c). The matters were disposed of accordingly, with the penalty being set aside.