2017 (12) TMI 859 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus purchase found during search - relevant limb under which penalty has been levied has not been struck off in the notice issued u/s 271(1)(c) - admission of additional evidences - Held that - Even if the assessee subsequently discloses the income in any return of income furnished afterwards has been specified to be of no consequence. Hence subsequent disclosure or nondisclosure of income in any return of income furnished subsequently has been specifically referred to be of no consequence. Thus as per a specific provision of explanation 5A assessee has been found to be owner of undisclosed income by furnishing inaccurate particulars of income, based upon entry of bogus purchases in its books of account. - the orders of the learned CIT(A) confirming the levy of penalty on merits is sustained and affirmed. Validity of notice issued for levy of penalty - additional evidence - Held that - In the original ground, the assessee has only contended that the Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the penalty u/s. 271(1)(c). This, by no stretch of imagination, can be said to be covering the additional ground now being raised by the ld. Counsel of the assessee. Be that as it may, we find that the ld. Commissioner of Income Tax (Appeals) had never an opportunity to give a finding on this aspect now being raised by the assessee. Hence, on the facts and circumstances of the case, and in the interest of justice, we remit this issue to the file of the ld. Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) shall give a finding on this additional ground being now raised by the ld. Counsel of the assessee after giving the assessee an opportunity of being heard.

Summary

Issues Involved:
1. Legality of the penalty order under Section 271(1)(c) of the Income Tax Act.
2. Applicability of Explanation 5A to Section 271(1)(c) in cases of bogus purchases.
3. Impact of the system of accounting (percentage completion method) on penalty imposition.
4. Relevance of the case law from Nalwa Sons Investment Ltd.
5. Admission of additional grounds regarding the penalty notice's validity.

Detailed Analysis:

1. Legality of the Penalty Order Under Section 271(1)(c):
The assessee challenged the penalty order passed by the Assessing Officer (AO) under Section 271(1)(c), arguing that the penalty was invalid because the relevant limb under which the penalty was levied was not specified in the notice issued under Section 271(1)(c). The Tribunal found that this ground was not raised at any stage before the AO or the CIT(A), and even before the ITAT, it was raised only much later. Consequently, the Tribunal remitted this issue to the CIT(A) to give a finding after providing the assessee an opportunity to be heard.

2. Applicability of Explanation 5A to Section 271(1)(c) in Cases of Bogus Purchases:
The CIT(A) upheld the penalty, stating that the assessee's case fell under Explanation 5A to Section 271(1)(c). This provision deems an assessee to have concealed income or furnished inaccurate particulars if, during a search initiated after June 1, 2007, they are found to be the owner of any income based on entries in books of account that were not declared in the return filed before the search. The Tribunal agreed, noting that the assessee had booked bogus purchases, thereby inflating work-in-progress, which was admitted by the Managing Director during the search.

3. Impact of the System of Accounting (Percentage Completion Method) on Penalty Imposition:
The assessee argued that since they followed the percentage completion method of accounting, there was no change in the income declared for the relevant years, and thus no penalty should be levied. However, the Tribunal found that the bogus purchases resulted in an inflation of work-in-progress, which was subsequently reversed, impacting the income in a later year. The Tribunal held that the penalty under Section 271(1)(c) was exigible as the assessee was found to be in possession of undisclosed income during the year.

4. Relevance of the Case Law from Nalwa Sons Investment Ltd.:
The assessee relied on the Delhi High Court's decision in Nalwa Sons Investment Ltd., where penalty was deleted because the assessment was completed under MAT provisions. The Tribunal distinguished this case, noting that the present case was assessed under normal provisions and not under MAT. Furthermore, Explanation 5A to Section 271(1)(c) was applicable in the present case, which was not considered in Nalwa Sons Investment Ltd. Consequently, the Tribunal found that the reliance on this case law was misplaced.

5. Admission of Additional Grounds Regarding the Penalty Notice's Validity:
The assessee raised an additional ground, arguing that the penalty order was bad in law because the relevant limb under which the penalty was levied was not struck off in the notice. The Tribunal noted that this ground was not raised at any earlier stage and was brought up only much later. Therefore, the Tribunal remitted this issue to the CIT(A) to provide a finding after hearing the assessee.

Conclusion:
The Tribunal upheld the penalty on merits, confirming that the assessee had furnished inaccurate particulars of income by booking bogus purchases. The additional ground regarding the validity of the penalty notice was remitted to the CIT(A) for a fresh finding. The appeals by the assessee were allowed for statistical purposes.