2017 (3) TMI 1885 - HC - Income Tax

Penalty levied u/s 271(1)(c) - additions were confirmed in the quantum appeal - bogus purchases - HELD THAT - As the expenses or the credits which were shown by the creditors cannot be proved, therefore, no substantial tax is paid. Therefore, in that view of the matter, on the basis of the observations made in Aiyub Umarji Patel 2013 (2) TMI 738 - GUJARAT HIGH COURT and Oasis Hospitalities (P) Ltd. 2011 (1) TMI 194 - DELHI HIGH COURT in our view, the issue is required to be answered in favour of the assessee and against the department.

Summary

Issues Involved:
1. Whether penalty can be levied under Section 271(1)(c) solely because the additions were confirmed in the quantum appeal, without examining the issue again in penalty proceedings with reference to the law and principles underlying the levy of penalty?

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) and Quantum Appeal:
The appellant challenged the judgment and order of the Tribunal, which had partly allowed the appeal of the assessee and remanded the matter back to the Assessing Officer. The substantial question of law framed was whether penalty can be levied under Section 271(1)(c) solely because the additions were confirmed in the quantum appeal, without re-examining the issue in penalty proceedings with reference to the law and principles underlying the levy of penalty.

2. Assessing Officer's Observations:
The Assessing Officer concluded that the assessee had shown bogus purchases from parties that were not produced for examination and were not available at the given addresses. It was inferred that the assessee introduced its own unaccounted money as credit purchases in the name of non-existent persons, amounting to ?1,06,717/- as income from undisclosed sources.

3. CIT(A)'s Observations:
The CIT(A) noted that the concerns involved were existing and registered dealers with the Sales Tax Department. The payments were made through cheques, and the transactions were supported by proper invoices. The CIT(A) criticized the AO for not independently examining the issue in the penalty proceedings and for not bringing any evidence to show that the purchases were bogus.

4. Tribunal's Observations:
The Tribunal, in its quantum appeal, reduced the additions to ?2,23,945/- and noted that the AO had not brought any evidence to show that the purchases were bogus. The Tribunal's decision was based on the material available on record.

5. Gujarat High Court's Precedent:
The appellant relied on the Gujarat High Court's decision in the case of National Textiles vs. Commissioner of Income Tax, which emphasized that the addition made under Section 68 does not automatically justify the imposition of penalty under Section 271(1)(c). It was highlighted that the presence of conscious concealment or furnishing of inaccurate particulars must be proven for the penalty to be justified.

6. Delhi High Court's Precedent:
The appellant also cited the Delhi High Court's decision in Commissioner of Income Tax vs. Oasis Hospitalities (P) Ltd., where it was held that the inability to prove the creditworthiness of share applicants did not amount to concealment of income, and thus, penalty under Section 271(1)(c) was not justified.

7. Respondent's Argument:
The respondent argued based on the Supreme Court's decision in Commissioner of Income Tax vs. Reliance Petroproducts Pvt. Ltd., which stated that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars of income.

8. Gujarat High Court's Decision in Aiyub Umarji Patel:
The respondent further relied on the Gujarat High Court's decision in Aiyub Umarji Patel vs. Income Tax Officer, where the court upheld the revenue authorities' decision to treat unexplained credits as income, emphasizing the burden on the assessee to prove the source and creditworthiness of the credits.

9. Court's Conclusion:
After considering the observations of the Assessing Officer, CIT(A), and the Tribunal, the court concluded that the credits shown by the creditors could not be proved, and thus, no substantial tax was paid. The court, aligning with the precedents set by the Delhi and Gujarat High Courts, ruled in favor of the assessee, stating that the penalty under Section 271(1)(c) was not justified without concrete evidence of conscious concealment or furnishing of inaccurate particulars.

10. Judgment:
The appeal was allowed, and the issue was answered in favor of the assessee and against the department.