2024 (1) TMI 1302 - HC - Income Tax

Penalty u/s 271(1)(c) - sundry credits as claimed by the assessee has not been substantiated before the AO - HELD THAT - Sundry credits as claimed by the assessee has not been substantiated before the AO. The assessee had not produced any evidence but for the addresses furnished of the creditors. As was noticed by the AO, the invoices which led to the credits were also not produced by the assessee. Despite that, the Assessing Officer gave an opportunity to the assessee by way of issuing summons in the addresses furnished and also a further opportunity to produce the creditors before the AO. It cannot be said that the penalty was levied only on the creditors having not turned up and confirmed the credits. There was absolutely no evidence produced to substantiate the credit that was recorded in the books of accounts; when there can be inferred a deliberate furnishing of inaccurate particulars of income. This is a clear case falling u/s 271(1)(c) since the assessee had merely doctored its books of accounts to show sundry credits without even the invoices leading to such credits being produced. The certificates furnished, of the so called creditors, also did not show the credits; thus bringing in mens rea. As decided in Saheli Leasing and Industries Ltd. 2010 (5) TMI 9 - SUPREME COURT wherein the burden under Section 271(1)(c) is found entirely on the assessee and there cannot be any shifting of burden on to the revenue, especially in the context of no material having been placed before the AO to substantiate the sundry credits claimed. The mere disclosure of the name and address of the sundry creditors cannot lead to substantiation of the credits especially when there was no evidence produced regarding the transactions which led to the credit. The mere acceptance of the entirety of the purchases would not lead to substantiation of the credits claimed; since the purchases which led to the credit, has not been established before the Assessing Officer. There was no material available on record before the Assessing Officer, the First Appellate Authority or the Tribunal, which would have persuaded them to take a contrary decision with respect to penalty. Decided against assessee.

Summary

Issues involved:
- Appeal from Income Tax Appellate Tribunal regarding sundry creditors
- Four questions of law raised concerning sundry creditors

Analysis:

Question 1:
The first question of law raised was whether the Tribunal erred in adopting a finding from the assessment proceeding in penalty proceedings, considering the burden of proof rests on the revenue. The argument presented by the appellant's counsel was that Section 271(1)(c) cannot be invoked without deliberate intention to conceal income. The counsel relied on legal precedents to support this contention. However, the Senior Standing Counsel for the Income Tax Department argued that the assessee failed to produce evidence like invoices to establish transactions leading to the credits recorded in the books of accounts. The court noted that the penalty was imposed due to the non-appearance of sundry creditors despite notices issued by the Assessing Officer.

Question 2:
The second issue raised was whether the Tribunal's order confirming the penalty was erroneous in law, considering the disclosure of sundry trade creditors in the income tax return. The appellant's counsel argued that the books of accounts were in order, and the mere non-appearance of creditors should not lead to a penalty. On the other hand, the Income Tax Department's counsel highlighted the lack of material produced to substantiate the transactions, as invoices were not provided.

Question 3:
The third question revolved around whether the levy of penalty was justified, given the acceptance of purchases in the assessment proceeding and the outstanding balance of trade credit transactions in subsequent years. The court observed that the Assessing Officer had issued a questionnaire asking for complete details of creditors, but the assessee failed to provide necessary documents to support the credits recorded.

Question 4:
The final issue was whether the Tribunal's order was contrary to the available record and therefore perverse. The court analyzed legal precedents and the provisions of Section 271(1)(c) to conclude that the burden of proof lies entirely on the assessee. It was noted that the mere disclosure of creditor names and addresses without substantiating transactions does not absolve the assessee from penalty. The court found that there was no material to support a different decision regarding the penalty at various stages of assessment.

In conclusion, the court answered all questions of law against the assessee and in favor of the revenue, rejecting the appeal. The judgment emphasized the importance of substantiating transactions and providing evidence to support credits recorded in books of accounts to avoid penalties under Section 271(1)(c) of the Income Tax Act.