TaxTMI 
TaxTMI 
TaxTMI 
2001 (3) TMI 232
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....register, wages and salary registers as well as purchase and sale vouchers, and expenses vouchers were not seized as perhaps they were not found during the course of search operations. After the search the Assessing Officer (AO), took up the assessee's case for finalisation and during the course of scrutiny and enquiry of purchase register as well as cash book, the AO noticed that the assessee made purchases of raw materials on different dates from the below given dealers on credit basis: Rs. (1) Pradip Traders, Kadia Eul, Relief Road, Ahmedabad-1 (Bill Nos. 79 & 206) 5,362.50 (2) Vardhman Mill Gin Stores, Raipur Chakla, Ahmedabad-1 (Bill Nos. 131 and 139) 7,447.75 (3) Atlas Agencies, Dariapur Tower Road, Ahmedabad-1 (B....
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....bsp; 6,440.00 (5) Hemant Textile Suppliers (Bill Nos. 108, 112 & 128) 6,622.50 (6) Decent Textile Stores (Mirzapur Road Ahmedabad-1) (Bill No. 238) 1.360.00 --------- Total cash purchases 38,478.50  ....
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....th the Chief Inspector, Shops and Establishments, Municipal Corporation of Ahmedabad to ascertain from his records if those six parties were in existence during the period from 1st April, 1980, to 31st March, 1982, and to obtain their complete addresses but to the utter surprise of the AO the Chief Inspector, Shops and Establishments informed the AO that no such dealers were registered before him and even on that day they were not available. Thus, this effort of the AO also did not lead to positive results. The AO pursued the matter further and wrote a letter to the chairman of the Gajarawala Co-op. Housing Society Ltd. Paldi, Ahmedabad, and find out the whereabouts of one of the dealers viz. M/s Hemant Textile Suppliers, the address of which was of the said society and as given on the purchase bills. The secretary of the said society informed the AO that no such dealer was occupant or tenant in any building of the co-operative housing society. After completing these private enquiries the AO issued a letter dt. 21st Jan., 1986, to the assessee, the relevant portion of which we extract below: "6. On scrutiny of these bills, delivery memos and the receipts issued by the dealers for ....
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....ush and sulphuric acid purchased under cash memo No. 246, dt. 10th June, 1981 from Pradip Traders was not entered into the ledger on pp 31 and 21 respectively. The AO further noticed that the p 4 of the stock ledger goods purchased on 10th Nov., 1980, from Oriental Mill Stores were entered after the entries for the goods purchased on 1st Nov., 1980, and 28th Nov., 1980. The AO therefore, informed the assessee that the stock ledger was not properly maintained and, therefore, such reliance cannot be placed on it. 7. During the course of assessment proceedings the AO also verified the inward registrar in respect of the goods purchased during the previous year relevant to the asst. yr. 1982-83 and he noticed large number of discrepancies which were pointed out in Annexure-A to the assessment order. The AO further observed in the following manner to the various discrepancies: "(1) Entries in the register are not made serially and datewise. (2) Though the goods have been received earlier, the entries thereof are found to have been made after the entries regarding the goods received on subsequent dates. (3) Most of the purchase bills of the above dealers have been entered in the inwar....
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....roposed addition of Rs. 77,943.75, contending inter alia, that it had made purchases from those six parties and the materials were also received and consumed also. It was the case of the assessee before the AO that merely because the purchases (sic) were not found at the addresses given in the purchase bills or they were not traceable on account of the private enquiries made by the AO that the said sum of Rs. 77,943.75 cannot be considered as concealed income of the assessee and added to the returned income on the ground that the assessee inflated the purchases. The AO was not satisfied with the explanation given by the assessee and added the same to the returned income along with the other additions. 11. It is further, pertinent to mention that three other allied/sister concerns of the assessee also made purchases from the above-mentioned six parties which came to be known through search and seizure operations on the said firms also under s. 132 of the Act. The AO also noticed that in respect of one of the dealers viz. M/s Oriental Mill Stores the sister-concern of the assessee M/s Jaycon Industries has made purchases upto 23rd May, 1983, and therefore, he was of the opinion that....
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....bunal in quantum appeal in view of the confession made by the assessee's authorised representative that the above-mentioned six parties were bogus, that is to say, not genuine and that they were neither traceable nor identifiable and therefore, the purchase invoices in their names debited in the account books of the assessee were not genuine. This is recorded by this Tribunal in the said order, dt. 7th May, 1993. 14. While the appeal was pending before this Tribunal the AO took up the penalty proceedings initiated under s. 271(1)(c) of the Act during the course of finalisation of assessment proceedings as we have narrated and recorded elsewhere above. The assessee's explanation to the charge made against it by the AO was found unsatisfactory and the AO, therefore, levied penalty of Rs. 23,886 for concealment of income under s. 271(1)(c) as per order dt. 25th/30th March, 1988. The assessee was therefore, aggrieved for levy of penalty and, therefore, appealed to the CIT(A), for cancellation of the same but the CIT(A) did not agree with submission made before him by the assessee's authorised representative and confirmed the penalty levied by the AO under s. 271(1)(c) of the Act. The ....
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....s in respect of the results found by his private enquiries, did nothing positive except repeatedly asserting that the parties were genuine and since the material was received as per the entries recorded in the inward and stock registers it went to prove that the purchases were genuine and the belief of the AO about the purchases being sham, bogus or non-genuine was not correct. The failure of the assessee to give the names and addresses of the proprietors/partners of those dealers also goes to support the case of the AO that the purchase recorded in the books and registers were nothing but bogus and sham resulting in inflation of the purchases and reduction of profits. To put colour and ring of truth and genuineness to the purchase transactions the assessee heavily but unsuccessfully relied upon the entries in the subsidiary registers and ventured to prove his case by stating that the materials were also consumed. 17. The assessee besides making self-serving statements and emphatic assertions about the purchases being genuine has not led any shred or iota of evidence which could establish that the purchases were genuine and not bogus. Mere purchase bills cannot prove assessee's ca....
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.... different parties; from whom alleged credit purchases were made and also fabricated, engineered and brought into existence false and bogus delivery challans, goods receipt memos, cash paid receipts, etc. To that extent it means that even the accounts were fabricated by incorporation of false entries of transactions that never took place. 21. Not only this assessee, but the other three allied and sister concerns of the assessee-firm mentioned by the AO in para 16 on p 11 of the assessment order have indulged in similar dubious and bogus purchases from very same six parties from whom the assessee is stated to have made purchases. The cumulative effect from the facts of this case and that of the allied/sister concerns of the assessee clearly go to establish about the common well-planned, well-designed and systematic scheme of all those assessees in defrauding the Revenue through evasion of taxes by concealing the true taxable income from assessment in the guise of bogus purchases. 22. We cannot let off the assessee from the teeth of s. 271(1)(c) of the Act for the simple reason that this Tribunal in assessee's quantum appeal has reduced the addition to Rs. 40,000 taking aid of s. 1....
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.... of those firms leaves no doubt regarding the charge of concealment made out by the AO against the assessee-firm. In fact, the assessee's authorised representative has been quite fair enough in admitting before us also in this appeal that the assessee's case has to be decided on the premise that the purchases were bogus and the settlers were neither identifiable nor traceable but bearing in mind, that the materials were received and consumed as per the entries found recorded in the subsidiary registers. We cannot attach much credence or value to the entries incorporated and found recorded in the inward and stock registers as both those registers were not seized on the search day and the assessee had every chance and opportunity to manipulate those registers in any manner befitting and benefiting to it. These registers we reiterate not being contemporaneously maintained in the regular course of business have to be rejected, as has rightly been done by the AO during the course of assessment proceedings as well as during the course of penal proceeding under s. 271(1)(c) of the Act. 25. Penalty also cannot be cancelled as contended by the assessee's authorised representative that the ....
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....). 29. In our view, the assessee has thus failed to prove its innocence. We, therefore, without slightest hesitation uphold the charge leveled against the assessee-firm for concealing its true income and for being visited with maximum penalty under the provisions of s. 271(1)(c). Looking at the facts of the case and the gravity of the charge and offence made out, the levy of maximum penalty is warranted and any leniency as pleaded by the assessee's authorised representative on these facts would be travesty of justice and a mockery of "Justice Dispensation System". However, we give one direction to the AO to recalculate the maximum penalty on the basis of tax payable pursuant to order passed giving effect to this Tribunal's order in assessee' quantum appeal. 30. The impugned order is therefore, upheld and assessee's appeal dismissed. B.M. KOTHARI, A.M. 6th Oct., 1994 I have carefully gone through the decision proposed by the learned J.M. and have also discussed the matter, with him. After giving my thoughtful consideration to the proposed decision by the learned J.M. I find myself unable to agree with the view proposed by him....
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....onfirming the aforesaid penalties were thus passed prior to the decision of the Tribunal in the quantum appeal for the year under consideration. 3. The appeals submitted by the assessee against both the penalty orders for the year under consideration were fixed together for hearing on 27th July, 1994. The penalty levied under s. 273(1)(b) has been cancelled and assessee's appeal has been allowed by the Tribunal vide order dt. 28th July, 1994 in ITA No. 1163/Ahd/1989, in which both of us were parties. The order prepared by the learned J.M. proposing to confirm the penalty of Rs. 23,886 levied under s. 271(1)(c) has been sent to me on 30th Sept., 1994. 4. The learned J.M. has extensively relied upon the observations and findings given in the assessment order, order passed by the CIT(A) in the quantum appeal and orders of the lower authorities passed in relation to penalty under s. 271(1)(c) in his proposed decision. With great respect I am of the considered opinion that the various observations made by the learned J.M. and the conclusion derived by him in the proposed order are not in conformity or in consonance with the appellate order passed by the Tribunal in the quantum appeal ....
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....ct. The lenient and liberal view taken by this Tribunal in assessee's quantum appeal by giving partial relief cannot be construed that the default, charge or guilt of the assessee-firm has been condoned or waived. This Tribunal by giving relief to the assessee has only given a concession to the assessee in relation to the assessment of income.... .... ....." It will be worthwhile to reproduce the findings given by the Tribunal in the quantum appeal vide its order, dt. 7th May, 1993: "Para 3. We have carefully considered the submissions made by the learned representatives. In view of the elaborate reasons given in the assessment order, and in the order of the CIT(A), and in view of the conclusion made by the learned counsel, we hold that the above-named six parties are not genuine parties. They are neither traceable nor identifiable and the purchase invoices in their names debited in the books of account of the assessee are not genuine. However, the contention of the assessee that material has been received deserves favourable consideration in view of the details and fact contained in the documents submitted in the compilation. We also upheld the action of the Revenue authorities ....
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....se invoices in their names debited in the books of account of the assessee are not genuine. The Tribunal, therefore, upheld the action of the Revenue authorities in holding that the book results cannot be accepted and the provisions of s. 145(2) could be applicable in a case like this. However, in a case where provisions of s. 145(2) are applicable, the only proper course would be to make a reasonable estimation of profits. The Tribunal further observed that on a proper appreciation of the entire facts and evidence existing on records, the entire amount of purchase price so disallowed by the Revenue authorities cannot be added as income as the material in question was really received by the assessee. Hence deduction in respect of a reasonable price in respect of the material really received by the assessee will have to be granted for making a reasonable estimation of profit. After taking into consideration the comparative position of G.P. rate disclosed by the assessee in various earlier years, the Tribunal arrived at the conclusion that it would be just and proper to direct the AO to make a lump sum addition of Rs. 40,000 as against the disallowance of the entire amount of purchas....
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....true that the Tribunal did confirm the finding given by the lower authorities that the six parties whose sale invoices were produced by the assessee to support the purchases in question were not genuine parties and they were not identifiable and the purchase invoices in their names were not genuine. But the non-existence of the six parties in question and the non-genuineness of the purchase invoices by itself could not lead to the automatic conclusion that this fact would result in concealment of income as contemplated in s. 271(1)(c), particularly when a finding of fact has been given in the quantum appeal that material in fact has already been received. 8. Once the finding of fact has been given by the Tribunal in the quantum appeal that material in question has really been received, the only question which survives thereafter is whether the rate of purchase or purchase price shown in the said ficticious invoices is reasonable or inflated one. Out of the addition of Rs. 40,000 sustained by the Tribunal only that part which is attributable to inflation of purchase price, if any, can be regarded as having its root or nexus with the transactions shown in the names of six bogus part....
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....; 7th Oct., 1994 A difference of opinion having arisen between us, the two members who heard the appeal originally, we state the point of difference as under: "Whether, on the facts and in the circumstances of the case, the penalty levied under s. 271(1)(c) should be sustained or the matter should be restored back to the AO". Submitted for further necessary action by the Hon'ble President, Income-tax Appellate Tribunal. VIMAL GANDHI, VICE PRESIDENT (AS A THIRD MEMBER): 17th Jan., 2001 This matter has been referred to me by the Hon'ble President under s. 255(4) of the IT Act for resolving the difference which arose between the learned A.M. and the learned J.M. relating to disposal of appeal. The following question referred precisely reflect the controversy: "Whether, on the facts and in the circumstances of the case, the penalty levied under s. 271(1)(c) should be sustained or the matter should be restored back to the AO?" 2. The facts of the case briefly stated are that the AO on examination of assessment record of the assessee for the rele....
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....closed by the assessee in different years on manufacture of articles as also plating charges received by the assessee. The learned counsel for the assessee had given working of addition of Rs. 28,734 which could at least be made in the hands of the assessee with reference to GP rate disclosed. After considering the relevant facts, the Tribunal was of the view that instead of Rs. 83,885 (Rs. 77,944 + Rs. 5,940) it would be just and fair to restrict the disallowance to Rs. 40,000. The above addition was sustained by the Tribunal vide order dt. 7th May, 1993. 2.3. In the meanwhile and before the quantum appeal could be taken up and decided by the Tribunal, the AO took up penalty proceedings under s. 271(1)(c) of the IT Act and imposed penalty of Rs. 28,886 under the said section for claiming deduction of Rs. 77,944 for bogus purchases. The levy having been confirmed by the AAC, the assessee challenged the levy further in appeal before Tribunal 'B' Bench, Ahmedabad in ITA No. 1665/Ahd/1989. After hearing the parties, the learned J.M. proposed an order confirming the levy. He considered the scrutiny of bills carried on by the AO to find the bogus purchases. The other enquiries made by ....
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....ine, accidental and honest mistakes can save any person from the clutches, teeth and rigours of penal provisions of any enactment. The two notable landmark judgments of the apex Court, one in the case of Hindustan Steel Ltd. vs. State of Orissa and the other in the case of Cement Marketing Co. of India Ltd. vs. Asstt. CST (1980) 124 ITR 15 (SC) clearly lay down what we have stated above. 24. The refusal of the assessee's authorised representative during the course of hearing of this appeal to go back to the AO and reestablish the genuineness of the alleged purchases by producing the concerned proprietors/partners of those firms leaves no doubt regarding the charge of concealment made out by the AO against the assessee-firm. In fact, the assessee's authorised representative has been quite fair enough in admitting before us also in this appeal that the assessee's case has to be decided on the premise that the purchases were bogus and the sellers were neither identifiable nor traceable but bearing in mind, that the materials were received and consumed as per the entries found recorded in the subsidiary registers. We cannot attach much credence or value of the entries incorporated and....
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....unal in the quantum appeal: "Para 3. We have carefully considered the submissions made by the learned representatives. In view of the elaborate reasons given in the assessment order and in the order of the CIT(A) and in view of the concession made by the learned counsel, we hold that the above-named six parties are not genuine parties. They are neither traceable nor identifiable and the purchase invoices in their names debited in the books of accounts of the assessee are not genuine. However, the contention of the assessee that material has been received deserves favourable consideration in view of the details and facts contained in the documents submitted in the compilation. We also uphold the action of the Revenue authorities in holding that book results cannot be accepted and the provisions of s. 145(2) would be applicable in a case like this. However, we agree with the assessee's contention that the entire amount of purchase price cannot be added as deduction for a reasonable price in respect of the material really received by the assessee will have to be granted. In a case where provisions of s. 145(2) are admittedly applicable, the only proper course would be to make a reaso....
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....t of addition of Rs. 40,000 sustained by the Tribunal only that part which is attributable to inflation of purchase price, if any, could be regarded as having its root or nexus with the transaction shown in name of six bogus parties in relation to which addition was made by the AO and the balance amount of addition sustained by the Tribunal in the quantum appeal would be like any other estimated/lump sum addition made in the declared gross profit by invoking the provisions of s. 145(2) of the IT Act. It has also to be kept in mind that penalty proceedings are quasi-criminal in nature and matter is to be determined on preponderance of probabilities. The other aspect which will need serious consideration after the decision of the Tribunal in quantum appeal is whether penalty can still be levied on such altered nature of addition sustained by the Tribunal. In the light of above discussion, the learned A.M. in the proposed order thought it fit, just, proper and appropriate to set aside the orders of lower authorities and restore the matter back to the AO for deciding the question afresh in accordance with law after providing reasonable opportunity of being heard to the assessee. In the....
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....dings. Such an impression can arise on account of extensive quotations from the order of Tribunal in the quantum proceedings on which the learned Members have relied in the proposed orders now before me. Again, it is to be borne in mind that in penalty proceedings one cannot make out a case totally different from one made in assessment proceedings. In other words, levy of penalty cannot be justified on the basis of finding recorded by the appellate authorities if those findings are based on facts different from one on which satisfaction was recorded by the AO for purposes of levy of penalty. Therefore, in all cases, it is imperative before levying penalty to see whether the basis on which penalty proceedings were initiated has been altered or modifies by the appellate authorities. If original basis is altogether altered, the penalty proceedings originally initiated have to be dropped. Whether facts found are altered or not is a question of fact depending upon circumstances of a given case. 6.2. In this case, as is evident from quotations extensively quoted earlier, the Tribunal in the quantum appeal, accepted the fact that goods claimed to be purchased by the assessee from six par....