1994 (4) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Bogus Purchases
2. Cash Purchases Disallowed under Section 40A(3)
3. Incentive Bonus Disallowance
4. Penalty under Section 271(1)(c) of the Income-tax Act, 1961

Detailed Analysis:

1. Bogus Purchases:
The Income Tax Officer (ITO) concluded that the assessee inflated its purchases by recording bogus purchases from six parties, totaling Rs. 72,868. The ITO found that the purchase invoices and delivery memos were fabricated, with vague and incorrect addresses, and all bills appeared to have been printed at the same press. The assessee could not produce any confirmation from these parties, and the registered letters sent by the ITO were returned. The Municipal Corporation confirmed that no such dealers existed at the given addresses. The ITO highlighted various discrepancies in the stock registers, including non-chronological entries and lack of day-to-day records of consumption. Consequently, the ITO added Rs. 72,868 to the assessee's income as bogus purchases.

The Tribunal, on appeal, confirmed an addition of Rs. 45,000 out of the total Rs. 72,868, converting it to a Gross Profit (G.P.) addition, considering the totality of the circumstances. The CIT(A) deleted the penalty on this amount, interpreting the Tribunal's decision as a G.P. addition covering all defects in the books.

2. Cash Purchases Disallowed under Section 40A(3):
The ITO disallowed Rs. 28,517 under Section 40A(3) for cash purchases of raw materials not supported by purchase vouchers. The Tribunal, on appeal, deleted this addition. Consequently, the CIT(A) held that no penalty was leviable in respect of this amount.

3. Incentive Bonus Disallowance:
The ITO made an addition of Rs. 38,242 on account of Incentive Bonus, which was confirmed by the CIT(A). The Tribunal restored the matter to the CIT(A) to verify the register for payment of the Incentive Bonus. The CIT(A) noted that if the matter is decided against the assessee, fresh penalty proceedings could be initiated.

4. Penalty under Section 271(1)(c):
The ITO initiated penalty proceedings under Section 271(1)(c) for concealment in respect of the three additions and levied a penalty of Rs. 1,57,588. The CIT(A) deleted the penalty, relying on the Tribunal's order in the quantum matter. The CIT(A) held that no penalty was leviable for the confirmed addition of Rs. 45,000 as it was a G.P. addition. The CIT(A) also noted that after the appeal effect of the Tribunal's order, it resulted in a loss of Rs. 46,912, and hence, no penalty was leviable on technical grounds.

The Tribunal, however, disagreed with the CIT(A) regarding the penalty on the Rs. 45,000 confirmed addition. The Tribunal noted that the genesis of the addition was rooted in bogus purchases and held that penalty under Section 271(1)(c) was leviable in respect of this amount. The Tribunal also discussed the conflicting judicial opinions on whether penalty could be levied when the finally assessed amount is a loss. The Tribunal followed the consistent view of the Ahmedabad Bench, which favored the assessee, holding that no penalty under Section 271(1)(c) is leviable when the assessment results in a loss.

Conclusion:
The appeal is allowed in part. The Tribunal upheld the CIT(A)'s decision to delete the penalty for the additions under Section 40A(3) and Incentive Bonus. However, the Tribunal held that penalty under Section 271(1)(c) is leviable for the Rs. 45,000 confirmed addition related to bogus purchases. Despite this, the Tribunal ultimately upheld the CIT(A)'s view that no penalty is leviable due to the final assessment resulting in a loss.