2019 (3) TMI 92 - AT - Income Tax

Bogus purchases - assessment u/s 143(3) - assessee has failed to file any evidence in the form of confirmation from aforesaid parties - CIT-A restricted the addition to 20% - HELD THAT - CIT(A) has categorically arrived at the conclusion that the assessee has failed to adduce any evidence to prove the genuineness of two creditors in question and that purchases shown by the assessee in the name of M/s. Lotus Communication and M/s. Deepa Enterprises were not genuineness, thus, bogus, as only entries have been received by the assessee in the shape of purchases, it is difficult to make out, as to how, the CIT(A) has restricted the addition made by the AO to 20%. Consequently appeal filed by the revenue is hereby allowed by setting aside the findings returned by CIT(A) and the assessment order passed by AO is hereby restored. - Decided against assessee Penalty u/s 271(1)(c) - assessee has concealed his particulars of income / furnished inaccurate particulars of income to evade the tax on concealed income - HELD THAT - Following the law laid down by Hon ble High Court in CIT vs. Manjunatha Cotton and Ginning Factory & Ors. 2013 (7) TMI 620 - KARNATAKA HIGH COURT we are of the considered view that the AO has failed to fulfill the condition laid down u/s 271(1)(c) of the Act before levying the penalty which is not automatic. Even otherwise, when it is not discernible from the assessment order as to whether assessee has furnished inaccurate particulars of income or has concealed particulars of income so as to apply the deeming provisions contained under Explanation1 (A) & 1(B) of the Act, the penalty u/s 271(1)(c) of the Act is not sustainable. - Decided in favour of assessee

Summary

Issues Involved:
1. Reduction of addition on account of bogus purchases.
2. Reduction of penalty under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Reduction of Addition on Account of Bogus Purchases:
The appellant, Income Tax Officer, New Delhi, challenged the order dated 16/10/2015 by the Commissioner of Income Tax (Appeals)-17, New Delhi, for the Assessment Year 2008-09. The main contention was that the CIT(A) erred in reducing the addition made by the Assessing Officer (AO) on account of bogus purchases from ?66,17,470 to 20% of such purchases, i.e., ?13,23,548.

The AO had framed the assessment under Section 143(3) of the Income Tax Act, making an addition of ?66,17,470 on the grounds that the assessee failed to provide evidence in the form of confirmation from M/s. Lotus Communications and M/s. Deepa Enterprises. The CIT(A) restricted the addition to 20%, citing reliance on the case of M/s. Unique Metal Industries.

The Tribunal noted that the assessee failed to produce original confirmations and other supporting evidence to substantiate the genuineness of the creditors. The purchases were considered bogus as they were shown to inflate the amount of purchases and reduce the profit. The Tribunal found it difficult to understand how the CIT(A) restricted the addition to 20% despite concluding that the purchases were not genuine. Consequently, the Tribunal allowed the appeal filed by the revenue, setting aside the CIT(A)'s findings and restoring the assessment order passed by the AO.

2. Reduction of Penalty under Section 271(1)(c) of the Income Tax Act:
The appellant also challenged the order reducing the penalty of ?20,44,881 under Section 271(1)(c) of the Income Tax Act. The AO had initiated penalty proceedings under Section 271(1)(c) based on the assessment framed under Section 143(3), levying a penalty of ?20,44,881 for concealment of income and furnishing inaccurate particulars of income.

The Tribunal observed that the AO did not record valid satisfaction as to whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The penalty order lacked clarity, and the AO's satisfaction was not discernible from the assessment order. The Tribunal referred to the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory & Ors., which emphasized that penalty under Section 271(1)(c) is not automatic and requires clear satisfaction regarding the concealment or furnishing of inaccurate particulars.

The Tribunal concluded that the AO failed to fulfill the conditions laid down under Section 271(1)(c) before levying the penalty. The penalty was not sustainable as it was not clear whether the assessee had furnished inaccurate particulars or concealed income. Consequently, the Tribunal deleted the penalty of ?20,44,881, allowing the appeal filed by the assessee.

Conclusion:
The Tribunal allowed the revenue's appeal regarding the addition on account of bogus purchases, restoring the AO's assessment order. However, it allowed the assessee's appeal regarding the penalty under Section 271(1)(c), deleting the penalty as the AO failed to meet the required conditions for its imposition. The orders were pronounced in open court on 27th February 2019.