2024 (2) TMI 44 - AT - Income Tax

Estimation of income - Unexplained expenditure u/s 69C - bogus/unverified purchases - HELD THAT - Admittedly, it is a matter of fact borne from record that the assessee had failed to substantiate the authenticity of his claim of having made genuine purchases from the mentioned tainted parties. At the same time, we find that it is a matter of fact borne from record that the A.O in the course of the assessment proceedings, had observed that the assessee in the garb of bogus bills procured from the aforementioned parties had routed the unaccounted stock available with him through his regular books of account When the A.O was of the view that the assessee had not made any genuine purchases from the aforesaid bogus/hawala parties and had merely procured bogus bill from them to route the unaccounted stock through his regular books of account, then, the sole inference which can be drawn is that the assessee had purchased goods not from the aforementioned tainted parties but had procured the same at a discounted value from open/grey market. We are unable to concur with the A.O who had made addition of the entire value of the impugned purchases in the hands of the assessee. Also, we find that the A.O had at no stage rejected the books of account of the assessee u/s.145(3). Addition in the case of the assessee could only have been made to the extent of the profit element which he would have made by procuring goods at a discounted value from the open/grey market as against the value booked by him in the garb of aforesaid bogus purchase bills in his books of account. In so far the issue of quantification of the profit which the assessee would have made by procuring the goods in question from the open/grey market is concerned, we find that in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam Company, 2019 (2) TMI 1632 - BOMBAY HIGH COURT while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate as those of other genuine purchases. Profit made by the assessee in the case before us by procuring the goods at a discounted value from the open/grey market can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases. We, thus, in terms of our aforesaid observations restore the matter to the file of the A.O, with a direction to him to restrict the addition in the hands of the assessee w.r.t the impugned bogus/unverified purchases made by him by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases. Penalty u/s 271(1)(c) - defective notice u/s 274 - non specification of clear charge - HELD THAT - Failure on the part of the A.O to clearly put the assessee to notice as regards the default for which penalty under Sec. 271(1)(c) was sought to be imposed on him by clearly and explicitly pointing out the specific defaults in the SCN, for which the assessee was called upon to explain that as to why penalty u/s.271(1)(c) of the Act may not be imposed upon him, had, thus, left the assessee guessing of the default for which he was being proceeded against, and had divested him of an opportunity to put forth an explanation before the A.O that no such penalty was called for in his case. We, thus, in the backdrop of our aforesaid observations are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default for which he was being proceeded against, therefore, the penalty under Sec. 271(1)(c) imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained - Decided in favour of assessee.

Issues Involved:
1. Justification of the initiation of re-assessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Addition of amounts as unexplained expenditure under Section 69C of the Income-tax Act, 1961.
3. Levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961.

Summary:

Issue 1: Justification of the initiation of re-assessment proceedings under Section 147 of the Income-tax Act, 1961
The assessee challenged the initiation of re-assessment proceedings under Section 147. The Tribunal found that the re-assessment was initiated based on information from the Commercial Tax Department, which indicated that the assessee had obtained bogus purchase bills. The Tribunal upheld the initiation of re-assessment proceedings as justified.

Issue 2: Addition of amounts as unexplained expenditure under Section 69C of the Income-tax Act, 1961
The assessee contested the addition of Rs. 14,91,783/- for A.Y. 2009-10 and Rs. 20,86,256/- for A.Y. 2012-13 as unexplained expenditure under Section 69C. The Tribunal noted that the assessee failed to substantiate the authenticity of purchases from tainted parties. However, the Tribunal concluded that the addition should be limited to the profit element derived from procuring goods at a discounted value from the open/grey market. The Tribunal directed the AO to restrict the addition by bringing the Gross Profit (G.P.) rate of such bogus purchases at the same rate as that of other genuine purchases.

Issue 3: Levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961
The assessee challenged the penalty of Rs. 25,84,000/- imposed under Section 271(1)(c) for A.Y. 2010-11. The Tribunal found that the AO had failed to specify the exact default (whether it was for "concealment of income" or "furnishing of inaccurate particulars of income") in the show-cause notice. This failure to clearly indicate the specific charge was deemed a violation of the principles of natural justice. Consequently, the Tribunal quashed the penalty imposed by the AO and upheld by the CIT(A).

Conclusion
The Tribunal allowed the appeals for statistical purposes regarding the addition of unexplained expenditure by directing the AO to restrict the addition to the profit element. The Tribunal also quashed the penalty imposed under Section 271(1)(c) due to the AO's failure to specify the exact charge in the show-cause notice.

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