2019 (3) TMI 1632 - AT - Income Tax

Tribunal limits addition on alleged purchases, deletes penalty under Section 271(1)(c).

Chetas Control Systems Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle-1 (1), Pune.

The Tribunal partly allowed the appeals related to the addition of alleged bogus purchases, limiting the addition to 10% over and above the Gross Profit. ... Bogus purchases - statement was recorded u/s.133A of the Act wherein the assessee has accepted making various bogus purchases at the different assessment years - GP estimation - HELD THAT:- AR showed the copy of affidavit and statement of facts before the Ld. CIT(A) wherein they have reiterated the statement made during the course of survey on the ground that those were not voluntarily made. Rather, they have made those statements in compulsion and pressure from Department. However, we do not find any evidence placed on record to suggest this fact. That even, the movement of goods was not demonstrated by the assessee conclusively. There are no evidences like Government records, payment of octroi duty receipts, road challans or documents with stamp by govt. authority. Nothing has been placed on record regarding movement of goods purchased. Therefore, it is clear that bogus purchases were made. Appreciating the similar set of facts and circumstances in the present case of the assessee as compared to M/S. CHHABI ELECTRICALS PVT. LTD [2017 (6) TMI 514 - ITAT PUNE] we hold addition @10% of the alleged hawala purchases, over and above the GP shown by the assessee for the year. We therefore, set aside the order of Ld. CIT(A) and hold as aforesaid. Levy of penalty u/s.271(1)(c) - bogus purchases HELD THAT:- AO has not brought out any cogent specific reason for imposing penalty. The reason of the Assessing Officer is on assumption. Penalty u/s.271(1)(c) cannot be levied on assumption. There has to be something more which can justify such levy of penalty. Here, we have already decided that there were bogus purchases and relying on our decision in the case of M/s. Chhabi Electricals Pvt. Ltd. (supra), we have arrived at findings that addition @10% of the alleged hawala purchases, over and above the GP shown by the assessee should be done by the Assessing Officer. Any penal action is not warranted in the case of assessee. The Hon'ble Apex Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd [2010 (3) TMI 80 - SUPREME COURT] has held that all omissions cannot warranty the levy of penalty u/s.271(1)(c) of the Act. In the instant case, the assessee field revised return offering the additional income to tax immediately after the statement on oath and has not waited till the completion of proceedings or otherwise. Penalty levied u/s.271(1)(c) is not justified - Decided in favour of assessee. Issues Involved:1. Bogus Purchases and their Tax Implications2. Penalty under Section 271(1)(c) of the Income Tax ActDetailed Analysis:1. Bogus Purchases and their Tax Implications:The appeals pertain to the assessment years 2009-10 to 2011-12, where the assessee was accused of making bogus purchases. The Assessing Officer (AO) made a 100% addition on such purchases, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The case revolves around information received from the Maharashtra Sales Tax Department about a racket involving hawala dealers issuing fake invoices. The assessee was found to have claimed purchases of Rs. 3,51,57,380/- for the financial year 2008-09, which were identified as bogus. A notice under Section 148 was issued, and a survey under Section 133A was conducted, during which the Director of the assessee company admitted to the bogus purchases and offered the same for taxation in the revised return. The AO completed the assessment at a total income of Rs. 6,47,61,890/-, including the bogus purchases amounting to Rs. 3,40,06,190/-.The assessee argued that the purchases were genuine, supported by banking transactions and transporter bills, and claimed that the admission during the survey was made under duress. However, the Tribunal found no evidence of coercion and noted the lack of conclusive proof of the movement of goods. Citing a similar case (M/s. Chhabi Electricals Pvt. Ltd. Vs. DCIT), the Tribunal concluded that in cases where the purchases are found to be from the grey market, an estimation of 10% of the alleged bogus purchases should be added over and above the Gross Profit (GP) shown by the assessee. Thus, the Tribunal set aside the order of the CIT(A) and held that only 10% of the alleged bogus purchases should be added.In the result, the appeals for the assessment years 2009-10 to 2011-12 were partly allowed, applying the same ruling mutatis mutandis to all appeals.2. Penalty under Section 271(1)(c) of the Income Tax Act:The assessee also appealed against the penalty imposed under Section 271(1)(c) for concealment of income. The Revenue argued that the penalty was justified as the additional income was offered only after the detection of bogus purchases. The assessee contended that the revised return was filed immediately after the survey, showing cooperation with the Revenue and no intention to conceal income.The Tribunal referred to the Supreme Court's decision in CIT Vs. Reliance Petroproducts Pvt. Ltd., which held that penalty cannot be levied in all circumstances and must be based on evidence of mens rea (guilty mind) and actus reus (guilty act). The Tribunal found that the AO did not provide specific reasons for imposing the penalty and that the revised return was filed promptly. Therefore, the Tribunal concluded that the penalty under Section 271(1)(c) was not justified and directed its deletion.In the result, the appeals regarding the penalty for the assessment years 2009-10 to 2011-12 were allowed, applying the same ruling mutatis mutandis to all appeals.Conclusion:The Tribunal partly allowed the appeals concerning the addition of bogus purchases, limiting the addition to 10% of the alleged bogus purchases over and above the GP. It also allowed the appeals against the penalty under Section 271(1)(c), directing the deletion of the penalty.Order pronounced on 06th day of March, 2019.