TaxTMI 
TaxTMI 
2012 (10) TMI 808
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....h suppliers. The assessee was asked to explain as to why the cash payments made ought not to be disallowed under Section 40A(3). It was also asked to explain the substantial expenses claimed in the P&L account with the aid of vouchers and bills. The assessee explained that small suppliers who could deliver the building materials at the site of construction had insisted on early payments since they in turn had to make immediate payments to the stockists. Consequently, a large number of bearer cheques to such small suppliers had been issued. The assessee, therefore, requested as follows: "...In these circumstances, the assessee would be grateful if the net profit of the company may be computed by application of a reasonable net profit rate on its contract receipts net of material supplied by the societies (employer). It is understood by the assessee that in the case of building contractors, the department normally applies a net profit rate of 8 percent on net receipts. Therefore, to buy peace of mind, to obviate unnecessary litigation and with a view to cooperate with the Department, the assessee offers that its income may be computed by applying a net profit rate of 8 percent provi....
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....led taxable income. It is a matter of record that Income Tax Department is accepting 97% of returns of income without making any scrutiny of income disclosed in return of income filed and only in 3% of cases detailed scrutiny of particulars of income filed along with the return of income are being made. In these circumstances, the possibility of getting scot-free by furnishing inaccurate particulars of income is very high. Had there been no scrutiny in the case of the appellant, it would not have been possible for the department to detect and tax the concealed income. These facts clearly lead to a conclusion that the appellant has deliberately furnished inaccurate particulars of income. Even though, as per amended provisions of Section 271(1)(c), the department need not prove that the appellant has furnished incorrect particulars of income, "deliberately". 6. The assessee's appeal to the ITAT was allowed. The Tribunal reasoned as follows: "4.3 This brings us to the crux of the matter, which is that the addition was made not only specific item but by applying 8% net profit rate. This was done in spite of the facts that the AO was in the knowledge that provisions of Section 40A(3) ....
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....axed, the AO nevertheless was satisfied that the particulars furnished in the return were unsubstantiated and, therefore, inaccurate within the meaning of the expression under Section 271(1)(c). This was a clear case of deliberate and intentional withholding of particulars in order to gain or enrich itself. 8. Learned counsel for the Revenue relied upon the decision in Electrical Agencies Corporation v. CIT 253 ITR 619 and emphasized that the object of a presumption indicated was precisely to put the assessee to notice that in the event of relevant or material particulars being withheld, it could face penalty proceedings. In the present case, the assessee's claims were found to be completely inaccurate factually. As a result, the penalty proceedings and imposition of penalty were warranted in law. 9. It was argued on behalf of the assessee that the imposition of penalty in this case was completely unwarranted. Learned counsel highlighted that the Tribunal had correctly deduced from the materials on record that the figure of Rs. 51,71,270/- relied on by the AO does not correlate with any cash payment. All the five names mentioned in the show cause notice issued to the asses....
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....time, the Assessing Officer, while deciding to initiate proceedings, has to base his opinion on the materials available on record. Here, the assessee had claimed deduction in the computation of expenses; a part of that amount was actually accepted. The amount added back as a result of the assessee's offer, did not correspond with the total amount representing the payments made through bearer cheques or cash; that was Rs.40,73,180/- (evident from the calculation and documents placed on record before the Tribunal). The impugned judgment has taken notice of this fact. 12. The offer made by the assessee was on the basis that it could not give the details of the parties, and in order to buy peace, the AO was requested to tax the gross receipts on net profits basis. This, as noticed earlier, resulted in addition of over Rs. 51 lakh, which represented more than the amount disallowable under Section 40A(3). 13. The relevant portions of Section 40A(3) are extracted below, for the sake of convenience: "3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or a....