2021 (3) TMI 621 - AT - Income Tax

Bogus purchases - Addition is solely made upon sales tax department information - HELD THAT - AO has not bothered to make any enquiry of his own. In this case the sales or any other aspect of the working have not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from honourable jurisdictional High Court decision in the case of Nikunj Eximp Enterprises 2014 (7) TMI 559 - BOMBAY HIGH COURT . In this case the honourable High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. Facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation in our considered opinion on the facts and circumstances of the case the disallowance out of the bogus purchases done by the learned CIT(A) meets the end of justice. Accordingly we uphold the order of learned CIT(A). Penalty levied under 271(1)(c) - disallowance of 100% on account of bogus purchases solely on Sales Tax Department information - HELD THAT - The purchase vouchers were duly produced and the payments were through banking channel. In these backgrounds in our considered opinion assessee cannot be visited with the regours of penalty under section 271(1)(c) of the Act. As a matter of fact on many occasions on similar circumstances in quantum proceedings the disallowance itself has been deleted. Assessee cannot be said to have been guilty of concealment or furnishing of inaccurate particulars of income. In this regard we draw support from the decision of a larger bench of the honourable Supreme Court in the case of Hindustan Steels Ltd. state of Orissa 1969 (8) TMI 31 - SUPREME COURT where in it was held that the authority may no t levy the penalty if the conduct of the assessee is not found to be contumacious. Tax effect in this case is below the limit fixed by CBDT for filing appeals before ITAT. The revenue has tried to make out a case that since the addition was made pursuant to information from sales tax department, this penalty appeal falls in the exception carved out in the CBDT circular regarding appeals arising out of additions made pursuant to information from outside agencies. We are of the opinion that this plea is not tenable inasmuch as once revenue accepts that penalty is levied on outside agency information the penalty levied will have no legs to stand. Revenue appeal dismissed.

Summary

Issues:
- Reduction of addition for bogus purchase
- Penalty under section 271(1)(c) of the Income Tax Act

Reduction of addition for bogus purchase:
The case involved an appeal by the revenue against the reduction of the addition for bogus purchase by the learned Commissioner of Income Tax (Appeals) (CIT(A)). The assessee was engaged in contractual work-in-progress, and the assessment was reopened based on information from the sales tax department regarding purchases from bogus dealers. The Assessing Officer had made a 100% addition for the bogus purchase without issuing a notice to the alleged supplier. The CIT(A) sustained only a part of the addition after considering various case laws and the facts of the case. The ITAT upheld the CIT(A)'s order, emphasizing that the Assessing Officer did not conduct any independent enquiry and that when sales are not doubted, a hundred percent disallowance for bogus purchases cannot be justified. The ITAT referred to a jurisdictional High Court decision supporting this principle. The ITAT concluded that the disallowance made by the CIT(A) was appropriate in the circumstances, considering that the purchases were made from the grey market, resulting in savings for the assessee at the expense of the exchequer.

Penalty under section 271(1)(c) of the Income Tax Act:
The penalty under section 271(1)(c) was levied based on the disallowance of 100% on account of bogus purchases, which was solely done on information from the sales tax department without an independent enquiry by the Assessing Officer. The CIT(A) partly confirmed the addition, and the penalty was restricted to the amount sustained in the appeal. The revenue appealed against this order. The ITAT held that in such cases where disallowance was made on an estimated basis due to nonproduction of suppliers, and where purchase vouchers were produced with payments made through banking channels, the penalty under section 271(1)(c) was not justified. The ITAT referred to a decision of a larger bench of the Supreme Court to support this conclusion. Additionally, the tax effect in this case was below the limit set by the CBDT for filing appeals before the ITAT. The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s order and emphasizing that the penalty appeal could not stand on the basis of information from outside agencies.

In conclusion, the ITAT dismissed both appeals by the revenue, upholding the orders of the CIT(A) in both the reduction of addition for bogus purchase and the penalty under section 271(1)(c) of the Income Tax Act.