2022 (7) TMI 1017 - HC - Income Tax

Penalty levied u/s 271(1)(C) - assessee has furnished inaccurate particulars of income in the garb of fictitious cash sales and thereby claimed exemption u/s 80-IC - HELD THAT - The finding of fact arrived by the Assessing Officer as well as the Appellate Authority, has been set aside by the Tribunal mainly on the ground that the respondent had substantiated its explanation by sale bills, sale tax Challan and sale tax order passed by the VAT Authorities. Thus, the Tribunal was mainly influenced by the fact that as the VAT authority had accepted the cash transactions in question, the cash sales put up by the respondents were genuine. However, we are of the opinion that merely because the VAT Authorities had accepted the cash sales set up by the respondent in itself, is not a sufficient ground to hold that the cash sales set up by the respondent were genuine. Assessing Officer was liable to independently look into the cash sales to come to a conclusion as to whether the said sales were genuine or not. Assessing Officer as well as the Appellate Authority, rightly gave finding of fact that the cash sales putforth by the respondent were not genuine and the respondent had introduced its unaccounted income in the garb of cash sales. The Tribunal erred in deleting the penalty levied under Section 271(1)(c) of the Act despite there being sufficient material on record to show that the cash sales set up by the respondent were fabricated and not genuine. As we are of the considered opinion that the order passed by the Tribunal is liable to be set aside as the penalty levied under Section 271(1)(c) of the Act against the respondent was liable to be upheld in view of inaccurate particulars of income furnished by the respondent in the garb of fictitious cash sales with a view to claim exemption under Section 80-IC - Decided in favour of revenue.

Summary

Issues Involved:
1. Validity of the cash sales claimed by the respondent.
2. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
3. Applicability of the judgments cited by the respondent's counsel.

Issue-wise Detailed Analysis:

1. Validity of the Cash Sales Claimed by the Respondent:
The respondent, engaged in the manufacturing of essential oils, declared cash sales amounting to Rs. 3,12,00,000/- for the month of September 2006. The Assessing Officer (AO) scrutinized these sales and found discrepancies, including incorrect addresses of purchasers and the unusual pattern of sales occurring solely in September 2006. The AO concluded that the respondent had introduced unaccounted income as cash sales. The Tribunal's decision to accept these sales based on VAT payments was deemed insufficient by the High Court, which held that the AO was correct in independently verifying the genuineness of the sales.

2. Legitimacy of the Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:
The AO imposed a penalty of Rs. 1,06,04,880/- on the respondent for furnishing inaccurate particulars of income. This decision was upheld by the Commissioner of Income Tax (Appeals) but overturned by the Tribunal. The High Court, however, reinstated the penalty, emphasizing that the respondent's actions constituted a clear case of account fabrication. The court cited precedents from the Supreme Court, particularly "Union of India vs. Dharamendra Textile Processors" and "Commissioner of Income Tax, Delhi vs. Atul Mohan Bindal," to underline that the penalty under Section 271(1)(c) is a civil liability, not requiring mens rea (intent to deceive).

3. Applicability of the Judgments Cited by the Respondent's Counsel:
The respondent's counsel referenced several Supreme Court judgments to argue against the penalty. However, the High Court found these cases inapplicable due to differing facts. The court reiterated that the existence of VAT payments did not validate the genuineness of the cash sales. The court held that the Tribunal erred in its judgment by not considering the AO's independent findings and the substantial evidence of fabricated sales.

Conclusion:
The High Court set aside the Tribunal's order, reinstating the penalty under Section 271(1)(c) for the respondent's inaccurate income particulars. The court emphasized the AO's duty to independently verify sales and found sufficient evidence to support the penalty for fabricated cash sales. The appeal was allowed, and the Tribunal's order dated 25.08.2015 was nullified. Pending miscellaneous applications were also disposed of.