2014 (9) TMI 652 - AT - Income Tax

Tribunal reverses CIT(A) decision, upholds income addition for bogus expenses, reinstates penalty

DCIT(OSD), Ahmedabad Versus Drill Road Machine Pvt. Ltd.

The Tribunal reversed the CIT(A)'s decision and upheld the addition of Rs. 27,27,479 as income due to bogus purchase expenses. The Tribunal reinstated the ... Penalty u/s 271(1)(c) deleted – Inaccurate particulars furnished for bogus purchase expenses – Held that:- Penalty u/s 271(1)(c) levied by the AO was deleted by the CIT(A) – relying upon Commissioner of Income Tax – I Versus Prakash S. Vyas [2014 (7) TMI 89 - GUJARAT HIGH COURT] where the Hon’ble High Court has admitted appeal against disallowance finding a substantial question of law involved in the matter, the claim of the assessee for deduction cannot be treated as mala fide or frivolous so as to make him liable for penalty u/s 271(1)(c) of the Act - mere admission of an appeal by the High Court cannot without there being anything further, be an indication that the issue is debatable one so as to delete the penalty u/s 271(1)(c) of the Act even if there are independent grounds and reasons to believe that the assessee's case would fall under the mischief envisaged in the said Clause (c) of Sub-Section (1) of Section 271 of the Act - unless there is any indication in the order of admission passed by the HC simply because the Tax Appeal is admitted, would give rise to the presumption that the issue is debatable and that therefore, penalty should be deleted - the order of the CIT(A) deleting the penalty only on the ground that substantial question of law has been framed by the Hon’ble High Court in the quantum appeal is not sustainable - the assessee challenged the levy of penalty on other grounds also and it was not decided by the CIT(A) – thus, the issue of levy of penalty u/s 271(1)(c) is remitted back to the CIT(A) – Decided in favour of revenue. Issues Involved:1. Deletion of penalty levied under Section 271(1)(c) for furnishing inaccurate particulars on account of bogus purchase expenses.Issue-wise Detailed Analysis:1. Deletion of Penalty under Section 271(1)(c):The Revenue appealed against the CIT(A)'s order which deleted the penalty of Rs. 11,78,752/- levied under Section 271(1)(c) for furnishing inaccurate particulars on account of bogus purchase expenses.Facts of the Case:- The assessee claimed purchases of Rs. 27,54,990/- from five parties.- The Assessing Officer (AO) gathered information from these suppliers under Section 133(6), revealing that no actual goods were sold to the assessee; only sale bills were issued, and the amounts received were returned to the assessee after retaining a commission.- Consequently, the AO added the amount to the assessee's income.CIT(A)'s Decision:- The CIT(A) deleted the addition, reasoning that the AO made the addition hastily without establishing that the assessee could have produced the materials without such purchases.- The CIT(A) noted that the assessee entered purchases in the stock register, showed consumption of raw materials, and reported sales to the Sales Tax Department.- The CIT(A) opined that the purchases were made from the gray market to pay a lesser price, and bills were obtained from other parties to make the records straight.- The CIT(A) concluded that only 3% of the alleged bogus purchases should be added as profits, resulting in an addition of Rs. 68,529/- and allowing relief of Rs. 26,72,656/-.Tribunal's Decision:- The Tribunal reversed the CIT(A)'s order and restored the AO's order, confirming the addition of Rs. 27,27,479/-.- The Tribunal noted that the assessee did not controvert the facts recorded by the AO that the suppliers returned the purchase amounts after deducting a commission.- The Tribunal held that the amount received back by the assessee warranted the addition.Penalty Proceedings:- Following the Tribunal's decision, the AO issued a notice under Section 271(1)(c) and levied a penalty of Rs. 11,78,752/- for furnishing inaccurate particulars of income.- The CIT(A) deleted the penalty, citing that the Gujarat High Court admitted the assessee's appeal, indicating substantial questions of law, thus making the claim not frivolous or mala fide.Revenue's Argument:- The Revenue argued that the CIT(A) erred in deleting the penalty solely on the ground that the High Court admitted the quantum appeal.- The Revenue cited the Gujarat High Court's decision in CIT Vs. Prakash Vyas, which held that mere admission of a tax appeal does not indicate that the issue is debatable to warrant deletion of penalty under Section 271(1)(c).Assessee's Argument:- The assessee argued that the CIT(A) provided a categorical finding that the purchases were entered in the stock register, consumption was shown, and sales were reported to the Sales Tax Department.- The assessee contended that the purchases were made at a lower price from the gray market, and the amount received back was used for making payments for the purchases.Tribunal's Final Decision:- The Tribunal found that the CIT(A) deleted the penalty based on the High Court admitting the quantum appeal, which is not sustainable in light of the Gujarat High Court's decision in Prakash Vyas.- The Tribunal restored the issue of penalty levy back to the CIT(A) for adjudication on other grounds, allowing both parties reasonable opportunity of hearing.Conclusion:- The appeal of the Revenue was allowed for statistical purposes, and the case was remanded to the CIT(A) for further consideration on the merits of the penalty issue.Order Pronounced:- The order was pronounced in the Court on 24.1.2014.