2001 (3) TMI 232 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the IT Act for concealing income.
2. Validity of purchases from six dealers and their traceability.
3. Discrepancies in the assessee's stock and purchase registers.
4. Quantum of addition to the assessee's income.
5. Justification for penalty post quantum appeal decision.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the IT Act:
The primary issue in the appeal was whether the penalty of Rs. 23,886 levied under Section 271(1)(c) for concealing income should be sustained. The AO imposed the penalty based on the conclusion that the assessee inflated its purchases by recording bogus transactions with six dealers, which were neither traceable nor identifiable. The CIT(A) confirmed the penalty, and the Tribunal was tasked with assessing the correctness of this decision.

2. Validity of Purchases from Six Dealers:
The AO's investigation revealed that the purchases from six dealers, amounting to Rs. 77,943.45, were not genuine. The dealers were untraceable at the given addresses, and no records of their existence were found with the Chief Inspector, Shops and Establishments, or the Municipal Corporation of Ahmedabad. The AO concluded that these dealers were fictitious and that the purchases were bogus, leading to the addition of the said amount to the assessee's income.

3. Discrepancies in Stock and Purchase Registers:
The AO found several discrepancies in the assessee's stock and purchase registers, such as non-serial and non-datewise entries, and entries made periodically rather than on a day-to-day basis. These discrepancies raised doubts about the reliability of the registers as contemporaneous records of business transactions. The AO also observed that certain goods were not recorded in the inward register or stock ledger, further supporting the conclusion that the purchases were not genuine.

4. Quantum of Addition to Assessee's Income:
The Tribunal in the quantum appeal reduced the addition from Rs. 77,943.45 to Rs. 40,000, acknowledging that while the six parties were not genuine, the materials were received and consumed by the assessee. The Tribunal held that the entire purchase price could not be added as income, and a reasonable estimation of profits was necessary under Section 145(2) of the Act.

5. Justification for Penalty Post Quantum Appeal Decision:
The Tribunal's reduction of the addition to Rs. 40,000 altered the basis on which the penalty was originally levied. The Tribunal's finding that the materials were received and utilized necessitated a reconsideration of the penalty. The learned A.M. argued that the penalty should be reconsidered in light of the Tribunal's findings in the quantum appeal, as the nature of the addition had changed from being entirely bogus to partially justified based on the receipt and utilization of materials.

Conclusion:
The majority decision, including the opinion of the third member, directed the AO to reconsider the penalty under Section 271(1)(c) in light of the Tribunal's findings in the quantum appeal. The matter was restored to the AO to decide afresh, considering the altered nature of the addition and the necessity to establish whether the sustained addition represented inflated purchase prices. The assessee's appeal was allowed for statistical purposes, and the penalty issue was remanded for re-evaluation.