2018 (5) TMI 756 - AT - Income Tax

Penalty u/s 271(1)(c) - booking bogus bills of unworthy supplies to inflate expenses - Held that - In the instant case, the Revenue has established beyond any reasonable doubt that the assessee was indulged in booking bogus bills of unworthy supplies to inflate expenses. Tell-tale evidence of intermediary i.e. Shri Madanlal L. Shah and power of attorney holder of the assessee and confirmation thereof in cross-examination of intermediaries coupled with lack of proof towards delivery of purchases and clouded and suspicious bank transactions recorded to this effect leaves us in any manner of doubt that the assessee had deliberately and willfully subverted real source and character of the transactions. The assessee also prevented Revenue from knowing real source of supply and whereabouts of the supplier of the alleged goods purchased, if any. In the circumstances, appellate authorities were left with no option but to estimate a plausible overstatement of expenditure on purchases, and thereby understatement of profits. In these gross facts as recorded in the quantum proceedings, it is not a matter for consideration as to whether there was any concealment resorted by the assessee or not. Fact of under-statement of income is discernible. Only matter for consideration is extent of quantification of understatement of income. ITAT as a final fact finding authority has lent objectivity to such estimation. Thus, quarrel about quantum of estimated undisclosed income also does not survive any more. No rational ground for granting latitude to the assessee in the matter of relief pleaded. - Decided against assessee.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act concerning assessment year 2008-09 based on estimated undisclosed income arising from alleged bogus purchases.

Analysis:
The assessee, a proprietor of a cotton processing business, was subjected to a survey action revealing alleged bogus purchases from a specific party. The Assessing Officer (AO) added the amount of these purchases to the total income of the assessee. In the subsequent quantum proceedings, a Coordinate Bench of ITAT sustained a 25% addition towards these purchases. Consequently, the AO imposed a penalty under section 271(1)(c) amounting to ?52,37,420, which was later confirmed by the CIT(A).

The assessee contended that the penalty was erroneously imposed based on estimated additions of alleged bogus purchases. The Coordinate Bench in the quantum proceedings noted that while the bills may be adjusted, the purchases were not bogus per se. The assessee argued that since actual purchases were made, albeit from different parties, imposing a penalty on estimated income was unwarranted. The assessee cited precedents and contended that penalties should not be levied based on estimated additions.

On the other hand, the Revenue argued that the assessee had subverted facts and recorded bogus purchases, which were confirmed by the ITAT in the appellate proceedings. The Revenue contended that penalties were justified given the deception and design of the assessee, as evidenced by meticulous inquiry and the falsity discovered.

The Tribunal observed that the Revenue had established beyond doubt that the assessee had booked bogus bills to inflate expenses, preventing the real source of transactions from being known. The Tribunal found no grounds to grant relief to the assessee, as the under-statement of income was evident. The Tribunal highlighted the peculiar facts of the case, emphasizing the deliberate subversion by the assessee. It concluded that the penalties were justified, given the circumstances and the factual findings in the quantum proceedings.

Ultimately, the Tribunal dismissed the appeal of the assessee, upholding the imposition of the penalty under section 271(1)(c) based on the estimated undisclosed income arising from the alleged bogus purchases.

This detailed analysis of the judgment highlights the key arguments presented by both parties, the Tribunal's assessment of the facts and circumstances, and the ultimate decision to uphold the penalty imposed by the Revenue.