2015 (9) TMI 997 - AT - Income Tax

Penalty u/s 271(1)(c) - additions made on account of unverifiable purchases - CIT(A) deleted the penalty - Held that - The addition made by the Assessing Officer was specific on account of unverifiable purchases on which G.P. @ 25% was applied and added in the income. However, the same was reduced by the ld CIT(A) and applied different G.P. rate. However, the additions were specific. The assessee has not been able to produce these parties for verification and also summons were returned back to the officer unserved. This Bench recently decided this issue in detail in the case of Shri Anuj Kumar Varshney Vs. I.T.O. and other cases in 2015 (4) TMI 533 - ITAT JAIPUR and gave detail findings on unverifiable purchases in number of cases. The department has been able to prove that in gems and jewellery business, some of the parties were giving accommodation entry and some of them accepting the accommodation bill to reduce the profit. The parties names figured in this case also were similar to those cases, therefore, we hold that the addition made by the Assessing Officer was specific and assessee had concealed the income and furnished inaccurate particulars of income. Further the assessee s explanation is not bonafide. The case laws referred by the assessee are not squarely applicable. In this case, the addition was specific with reference to unverifiable purchases. Therefore, we reverse the order of the ld CIT(A). - Decided against assessee.

Summary

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(c) related to unverifiable purchases.
2. Applicability of Explanation 1(B) of Section 271(1)(c) in the context of the penalty.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed under Section 271(1)(c):

The revenue appealed against the CIT(A)'s order which deleted the penalty of Rs. 4,10,923/- imposed under Section 271(1)(c) despite confirming additions for unverifiable purchases amounting to Rs. 4,96,970/- in Unit-I and Rs. 62,600/- in Unit-II. The case involved the assessee, a manufacturer, exporter, and dealer of precious and semi-precious stones, who operated two units, with Unit-II being a 100% Export Oriented Unit (EOU) claiming exemption under Section 10B of the Income Tax Act.

The Assessing Officer (AO) found purchases from several parties unverifiable as the assessee failed to produce these parties for verification and summons issued to them were returned undelivered. Consequently, the AO applied a 25% Gross Profit (G.P.) rate on the unverifiable purchases, leading to additions of Rs. 41,14,423/- in Unit-I and Rs. 1,26,490/- in Unit-II after giving a 90% deduction under Section 10B. Penalty proceedings under Section 271(1)(c) were initiated for concealment of income and furnishing inaccurate particulars of income, resulting in a penalty of Rs. 4,10,923/-.

The CIT(A) allowed the appeal, observing that the existence of suppliers was proved on paper but not conclusively in business. The CIT(A) noted that the addition was based on unverified purchases without any other defect in the books of accounts. The CIT(A) referenced a similar case adjudicated by the ITAT, Jaipur Bench, where penalty was not upheld due to the absence of conclusive evidence of income concealment. The CIT(A) concluded that penalty under Section 271(1)(c) cannot be levied on presumptions and deleted the penalty.

2. Applicability of Explanation 1(B) of Section 271(1)(c):

The revenue contended that the CIT(A) ignored Explanation 1(B) of Section 271(1)(c) which pertains to the assessee's failure to offer an explanation or providing a false explanation for any fact material to the computation of income. The AO argued that the assessee's explanation was not bona fide and the case fell under Explanation 1 to Section 271(1)(c), indicating clear concealment and furnishing of inaccurate particulars of income.

The ITAT, in its analysis, noted that the AO's addition was specific to unverifiable purchases and the assessee's inability to produce the parties or serve summons validated the AO's findings. The ITAT referenced its detailed findings in similar cases involving unverifiable purchases in the gems and jewellery business, where it was established that accommodation entries were common. The ITAT concluded that the addition made by the AO was specific and the assessee had indeed concealed income and furnished inaccurate particulars, making the explanation not bona fide. Consequently, the ITAT reversed the CIT(A)'s order and upheld the penalty.

Conclusion:

The ITAT allowed the revenue's appeal, reinstating the penalty of Rs. 4,10,923/- imposed under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars of income, based on specific additions related to unverifiable purchases. The ITAT emphasized the specificity of the AO's findings and the lack of bona fide explanation from the assessee, thus validating the penalty under the provisions of Section 271(1)(c) and its Explanation 1(B).