2018 (1) TMI 192 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus purchases - Held that - The assessee has been consistently asking for the statement of said Sh. Jagdish C Mundra as well asking for cross examination of said Sh. Jagdish C Mundra which is consistently denied by Revenue. There is no such voluntary disclosure made by the assessee company w.r.t. bogus purchases during the course of search u/s 132(1), while the same was made by another Group concern namely Balaji Telefilms Limited. Thus, in our considered view, the penalty as levied by the Revenue u/s 271(1)(c) of the 1961 Act in the instant case cannot be sustained as the explanation offered by the assessee keeping in view peculiar facts of the case as also keeping in view smallness of the amount vis-a-vis returned loss is a bonafide explanation. Thus keeping in view peculiar facts of the case as enumerated above and ratio of decision of Hon ble Supreme Court in the case of Andaman Timber Industries (2015 (10) TMI 442 - SUPREME COURT), we are inclined to accept the explanation offered by the assessee to be bona-fide and we hereby order for the deletion of the penalty as levied by the AO which was later confirmed by learned CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Opportunity for cross-examination of third-party statements.
3. Validity of the alleged bogus purchases.

Issue-wise Detailed Analysis:

1. Legitimacy of the Penalty Imposed under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this case is the penalty of ?65,130 imposed on the assessee under Section 271(1)(c) for allegedly furnishing inaccurate particulars of income and concealing income. The Revenue's addition of ?2,16,441 was based on the assertion that the purchases from M/s. Somu Textile Pvt. Ltd. were bogus. The assessee argued that the penalty was unjustified as the addition was solely based on the statement of a third party, Shri. Jagdish Mundra, Director of Somu Textile Pvt. Ltd., who admitted that his company issued bogus bills without supplying any material. The assessee contended that the statement was not supported by any incriminating material and that all necessary documentation for the purchases was provided.

2. Opportunity for Cross-examination of Third-party Statements:
The assessee consistently requested the opportunity to cross-examine Shri. Jagdish Mundra, whose statement was the basis for the addition. However, the Revenue did not provide the statement to the assessee nor allowed the cross-examination. The tribunal noted that this failure breached the principles of natural justice, referencing the Supreme Court's decision in Andaman Timber Industries v. CCE, which emphasized the necessity of allowing cross-examination to uphold justice.

3. Validity of the Alleged Bogus Purchases:
The tribunal observed that the assessee had submitted all relevant documentation, such as invoices, delivery challans, and lorry receipts, to substantiate the genuineness of the purchases. The tribunal also noted that the voluntary disclosure of ?10.64 crores for bogus purchases was made by another group company, Balaji Telefilms Ltd., and not by the assessee. The tribunal found that the Revenue's reliance on the statement of Shri. Jagdish Mundra without allowing cross-examination or providing the statement to the assessee was insufficient to justify the penalty. The tribunal concluded that the explanation provided by the assessee was bona fide, considering the smallness of the amount and the significant losses claimed, and thus, the penalty could not be sustained.

Conclusion:
The tribunal allowed the appeal, ordering the deletion of the penalty imposed under Section 271(1)(c). The tribunal emphasized that the decision was based on the peculiar facts of the case and should not be considered a precedent for other pending appeals of the Balaji Group. The order was pronounced in the open court on 03.01.2018.