M/S.KALPAKA BAZAR vs. THE COMMR OF INCOME TAX,COCHIN

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ITR/8/1999HC KeralaKLHC01013976199926 November 2008Author: HONOURABLE MR.JUSTICE HARUN-UL-RASHID,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal was right in confirming the penalty under Section 271(1)(c) for the inflation of purchases amounting to Rs. 1,11,193/-. The Court found that the disputed amount represented proforma invoices, not actual purchases, and thus constituted bogus purchase expenditure accounted for by the assessee. Accounting for bogus purchase expenditure was considered a clear case of concealment, justifying the levy of penalty. The Court reasoned that the finding of fact against the assessee was clear-cut. Therefore, the question referred to the Court was answered against the assessee and in favour of the department. The Court did not leave any issue undecided.

What were the facts?

The assessee, M/s. Kalpaka Bazar, filed its return for assessment year 1984-85 disclosing an income of Rs. 1,54,713/-. The Income Tax Officer assessed the total income at Rs. 14,41,640/-, which included an addition for purchase inflation of Rs. 1,11,193/- and a gross profit addition of Rs. 11,21,066/-. This assessment followed a search conducted at the assessee's premises, seizure of documents, and a statutory audit under Section 142(2A). The audit identified bogus purchases of Rs. 1,11,193/- represented by proforma invoices. Penalty was levied on both purchase inflation and gross profit addition. While penalty related to gross profit addition was deleted in appeals, the Tribunal sustained the penalty for purchase inflation.

What were the issues?

1. Whether the Tribunal was right in confirming the penalty under Section 271(1)(c) of the Income Tax Act, 1961, in respect of the inflation of purchases to the tune of Rs. 1,11,193/-, where the ground raised by the department that this inflation was detected only during the audit under Section 142(2A) was not a valid and correct ground? Assessee's Contention: The assessee argued that the ground for penalty, which stated that the purchase inflation was detected during the audit under Section 142(2A), was not a valid or correct ground. The judgment does not record specific arguments from the assessee regarding the merits of the penalty itself, but rather focuses on the procedural aspect of the ground for penalty. Revenue's Contention: The revenue contended that the purchase inflation of Rs. 1,11,193/- was detected during the audit under Section 142(2A). The judgment does not explicitly detail the revenue's arguments beyond this factual assertion.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 142(2A)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE HARUN-UL-RASHID WEDNESDAY, THE 26TH NOVEMBER 2008 / 5TH AGRAHAYANA 1930 ITR.No. 8 of 1999() ------------------- AGAINST THE ORDER IN RA.84/COCH//1995 IN ITA 263/C/COCH/90 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT(S): -------------- M/S.KALPAKA BAZAR, TOWN HALL ROAD, CALICUT. BY ADV. SRI.C.KOCHUNNY NAIR SRI.DALE P.KURIEN RESPONDENT(S): --------------- THE COMMISSIONER OF INCOME-TAX, COCHIN. ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 26/11/2008, THE COURT ON 26/11/2008 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & HARUN-UL-RASHID, JJ. .................................................................... I.T. Reference No.8 of 1999 .................................................................... Dated this the 26th day of November, 2008.

JUDGMENT Ramachandran Nair, J. In the reference at the instance of the assessee, the Tribunal has referred the following question as arising from their order disposing of the penalty appeal for 1984-85. "Whether the Tribunal was right in confirming the penalty u/s 271(1)(c) in respect of the inflation of purchase to the tune of Rs.1,11,193/- where it could be found that the ground raised by the department that the inflation in purchase to the tune of Rs.1,11,193/- was actually detected only when the assessment was subjected to audit u/s.142(2A) as not a valid and correct ground?"

2.

For the assessment year 1984-85 assessee filed return disclosing income of Rs.1,54,713/-. However, the Income Tax Officer completed assessment on a total income of Rs.14,41,640/- which included addition towards purchase inflation for Rs.1,11,193/- and gross profit addition of Rs.11,21,066/-. In fact, search was carried out in the premises of the assessee and books of accounts and other documents were seized. Statutory audit was done under Section 142

2 (2A) of the Income Tax Act. The Auditor brought out bogus purchases accounted by the assessee to the extent of Rs.1,11,193/- which represents proforma invoices not representing any actual purchases. Penalty is levied based on inflation of purchase value and on account of gross profit addition. However, in successive appeals, penalty attributable to gross profit addition was deleted which is final. However, Tribunal sustained penalty pertaining to inflation of purchases amounting to Rs.1,11,193/-.

3.

Admittedly the disputed amount represents proforma invoices which do not represent actual purchases and so much so, the disputed expenditure is bogus purchase accounted by the assessee. Accounting of bogus purchase expenditure is nothing but concealment and therefore, penalty was rightly levied which got confirmed in appeal. In view of the clearcut finding of fact against the assessee, we answer the question referred against the assessee and in favour of the department. Reference case is disposed of as above.

3 A copy of this judgment under the seal of the High Court and signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench, Cochin. C.N.RAMACHANDRAN NAIR Judge HARUN-UL-RASHID Judge pms

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