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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR
PER MADHUMITA ROY, JUDICIAL MEMBER:
The instant appeal has been filed by the revenue before us against the order dated 16.12.2015 passed by the learned CIT(A)-4, Vadodara arising out of the order dated 08.03.2014 passed by the DCIT, Circle – 5, Baroda under section 271(1)(c) of the Income Tax Act, 1961.
Basically the revenue has come up in appeal challenging the order of deletion of penalty of Rs.23,99,366/-imposed under section 271(1)(c) of the Act against bogus purchase. Further that the revenue has alleged that the ld. CIT(A) while passing the order of deletion has failed to appreciate the fact that the assessee has wilfully inflated its purchases to evade taxes, which was proved as bogus twice, i.e. once in the original assessment and in the subsequent assessment proceedings in terms of the direction passed by the Hon’ble ITAT under section 254 of the Act as well. The revenue has alleged that the above fact attracts provisions of section 271(1)(c) of the Act as the mens rea of the assessee has been established on record. The brief facts leading to the case is that the appellant firm has filed its return of income for the A.Y.
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 2 of 11 1998-99 on 30.10.1998 declaring total income at Rs.81,74,060/-. On 08.03.2001 addition of Rs.68,55,330/- was made on account of bogus purchase while completing the original assessment proceedings under section 143(3) by the Assessing Officer. Appeal was preferred by the assessee before the ld. CIT(A) who in turn deleted such addition by and under an order dated 17.03.2001. In appeal preferred by the revenue, the Hon’ble ITAT was pleased to set aside the matter to the file of the Assessing Officer with the following directions :-
“i) Make necessary further inquiries from the (a) concerned bank authorities or otherwise in respect of person making withdrawals in cash and (b) Sales Tax authorities, in respect of genuineness of transactions in purchase; and ii) Allow another opportunity to the taxpayer to (a) furnish the actual working of GP on account of trading and manufacturing of rubble, and kapchi grit etc. and its impact on the profitability of the year under consideration vis-à-vis preceding years, in the light of books of accounts and other records claimed to have been maintained by the tax payer (b) to produce proprietors of the five firms in support of genuineness of the purchases.” 3. Pursuant to the said order passed by the Hon’ble ITAT, the Assessing Officer again passed an order of addition to the tune of Rs.68,55,330/- of bogus purchases under section 143(3) read with section 254 of the Act. The Assessing Officer was of the view that the assessee has failed to discharge its obligation during the reassessment proceedings since the assessee firm has not been able to produce the parties from whom purchases were made during the F.Y. 1997-98 relates to A.Y. 1998-99. The appeal preferred by the assessee against the said order was dismissed by the ld. CIT(A) on 03.12.2012. On the other hand, the Assessing Officer levied penalty under section 271(1)(c) of the Act and appeal was preferred thereof by the assessee before the ld. CIT(A) who in turn deleted the said imposition of penalty vide order dated 08.03.2014 and hence the instant appeal by the revenue before us.
At the time of hearing of the instant appeal, the Departmental Representative vehemently argued in support of the case. He submitted before us that in the quantum proceedings the bogus purchase was found to be proved and claim of the assessee was rejected by the ld. Assessing Officer which was ultimately confirmed by the ld. CIT(A). He further contended that the assessee failed to prove genuineness of his claim. Ld. Departmental Representative relied upon the order passed by the ld.
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 3 of 11 Assessing Officer imposing penalty against the assessee on the ground of concealment of income by it.
The learned Authorised Representative of the assessee, on the other hand, submitted before us that at the first round of litigation, addition was made by the Assessing Officer on the alleged bogus purchase against the assessee. The said addition was deleted by the ld. CIT(A). In fact, the ld. ITAT, on the premise of difference of opinion, sent down the matter to the Assessing Officer for readjudication of the issue. He further submitted before us that there was no conclusive evidence which shows that there is a concealment of income by the assessee or that there is a finding that the assessee’s explanation is false or a mens rea on the part of the assessee. He thus relied upon the order passed by the first appellate authority.
We have heard the learned Representatives appearing for the parties and perused the relevant materials available on record. While making the addition in the quantum proceedings the ld. Assessing Officer observed that the assessee has shown purchases from parties which do not exist and in order to inflate the expenses the procedure has been adopted by the assessee. He further observed inter alia that the assessee could neither discharge it’s obligation at the time of assessment nor even during the reassessment. While imposing the penalty upon being satisfied, the ld. Assessing Officer observed as follows :-
“Further, the learned C.I.T. (A)-V, Baroda, in his above referred Order dt. 03.12.2012 has observed that the fact of purchase of this surplus material has to be established by the appellant by producing necessary evidences. The appellant has failed miserably in proving this claim. There is neither any evidence of transportation of material nor the sellers are in existence. All payments made by the appellant have been withdrawn in cash by a single person which is different from so called sellers. The appellant has failed to produce the parties from which the so called purchases have been made and enquiries conducted by the A.O. -suggest that existence of these parties is doubtful. The appellant has also failed to prove the bonafide of details submitted by it in respect of these parties. No evidence regarding transportation etc. have been produced either. The appellant has also failed to give any reasons for decline in gross profit with necessary evidences. 6. Without prejudice to the above, further penalty is leviable in view of Explanation 1 to Section 271(1)(c) of the I.T. Act also. The explanation 1 to section 271(1)(c) of the I.T. Act is reproduced as under:
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 4 of 11 Explanation 1 - Whether in respect of any facts material to the computation of the total income of any person under this Act:
(A) Such person fails to offer an explanation or offers an explanation which Is found by the Assessing Officer or Commissioner (Appeals) to be false or
(B) Such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. With the enactment of the aforesaid Explanation, mens rea had not been proved by the Department but the assessee had to prove that there was no concealment, as settled in the case of CIT vs. Mussadilal Rambharose, 165 ITR, 14, 20 (SC); CIT vs. K.R. Sadyappan, 185 ITR 49 (SC), CIT (Addl.) vs. Jeevan Lal Shah, 205 ITR 244 (SC), B.A. Balasurbramaniam and Brothers Co. vs. CIT 236 ITR 977, 978 (SC) and KP Madhusudhan vs. CIT, 251 ITR 99 (SC). Reliance is also placed on the recent decision of Supreme Court in the case of M/s. Dharmendra Textile Processors Ltd., 306 ITR 277 (SC), wherein it has been held that "the explanations appended to Section 271(1)(c) of the Income tax Act, 1961 indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The objections behind the enactment of section 271(1)(c) read with Explanations indicates that the section has been enacted to provide a remedy for loss of revenue. The penalty under the provisions is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276 C. Further reliance is placed in the decision of Honourable High Court in the case of Commissioner of Income tax vs. Zoom Communication (P) Ltd. in I.T. Appeal No.07 of 2010 dt. May 24, 2010, wherein the provision of section 271(1)(c) has been dealt with as under:
Section 271(1)(c) of the Income tax Act, 1961-Penalty for concealment of income - Whether so long as assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under section 271(1) (c), even if claim made by him is unsustainable in low, provided that he either substantiates explanation or explanation, even if not substantiated is found to be bonafide - Held Yes. Whether if assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such a claim is not found to be bonafide, Explanation 1 to section 271(1)(c) would come into play and assessee would be liable to penalty - Held yes.
The Honourable High Court of Delhi has further held that : "It is true that mere submitting a claim which is incorrect in law, would not amount to giving inaccurate particulars of income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bonafide. If the claim besides being incorrect, in law is malafide, the Explanation 1 to Section 271(1) (c) would come into play and work to the disadvantage of the assessee.
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 5 of 11
From the sequence of the events narrated above it is crystal clear that at the time of reassessment proceedings and the penalty proceedings, the assessee could not prove that there was no furnishing of inaccurate particulars of income. In this case, the assessee's not only failed to establish genuineness of transaction relating to purchases, but also failed to submit explanation for non initiation of penalty proceedings u/s. 271(1)(c) of the IT. Act. It has been clearly established that the assessee had resorted to bogus purchases to inflate its expenses with a view to show low profit and to evade tax liability thereon. Hence it is clearly established that the assessee has concealed the particulars f of income, thereby liable for penalty u/s. 271(1)(c).” 10. Considering the above facts as discussed above, the issues is summarized as under:
Disallowance of bogus purchases Rs.68,55,330/-
I am satisfied that the assessee has tried to evade tax by furnishing inaccurate particulars of income leading to concealment of income to the tune of Rs.68,55,330/-. The assessee is, therefore, liable for penalty u/s. 271(1)(c) of the Act. The amount of penalty to be levied on concealment of income Rs.68,55,330/-.
In appeal before the ld. CIT(A) the assessee submitted the written notes with the details of parties with whom the firm had effected purchases supported by corresponding evidences in respect of payments along with bank statements, purchase bills, statement of accounts showing debit and receipt of materials etc. in the following manner :-
“1) M/s R.K. Traders:
i) The proprietor of R.K. Traders is Mr. Kirit R Shah ii) The rubble was sold to the appellant firm iii) The above firm had raised bills for the sale of material between April, 97 to March 98 iv) The payments were made by crossed account payee cheques v) The account was finally settled on 30.03.99 vi) Complete evidences in respect of payments along with copy of bank statement evidencing payments made through proper banking channels was verified during assessment proceedings and available on record. vii) Complete record of purchase bills and statement of account showing dates of receipt of material in the form of delivery cum invoice are made available and were verified during assessment proceedings by the AO.
M/s Ashirwad Corporation
i) The proprietor of Ashirwad Corporation is Mr. Kiritkumar R Shah ii) The rubble was sold to the appellant firm
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 6 of 11 iii) The above firm had raised bills for the sale of material between April, 97 to March 98 iv) The payments were made by crossed account payee cheques v) The account was finally settled on 30.03.99 vi) Complete evidences in respect of payments along with copy of bank statement evidencing payments made through proper banking channels was verified during assessment proceedings and available on record. vii) Complete record of purchase bills and statement of account showing dates of receipt of material in the form of delivery cum invoice are made available and were verified during assessment proceedings by the AO.
M/s Bhagyalaxmi Trading Co.
i) The proprietor of Bhagyalaxmi Trading Co. is Mr. Patel Magan Shankerbhai ii) The rubble was sold to the appellant firm and was delivered at site iii) The firm had raised bills for the sale of material between April, 97 to March 98 iv) The payments were made by crossed account payee cheques v) The account was finally settled on 30.03.99 vi) Complete evidences in respect of payments along with copy of bank statement evidencing payments made through proper banking channels were verified during assessment proceedings and available on record. vii) Complete record of purchase bills and statement of account showing dates of receipt of material in the form of delivery cum invoice are made available and were verified during assessment proceedings by the AO.
M/s Shalin Corporation:
i) The proprietor affirm is Mr. Patel Ramanbhai Bhagwanbhai ii) The rubble was sold to the appellant firm iii) The above firm had raised bills for the sale of material between April, 97 to March 98 iv) The payments were made by crossed account payee cheques v) The account was finally settled on 30.03.99 vi) Complete evidences in respect of payments along with copy of bank statement evidencing payments made through proper banking channels was verified during assessment proceedings and available on record, vii) Complete record of purchase bills and statement of account showing dates of receipt of material in the form of delivery cum invoice are made available and were verified during assessment proceedings by the AO.
5) M/s Bharat Sales Corporation
i) The proprietor of Bharat Sales Corporation is Kirit R Shah. ii) The rubble was sold to the appellant firm and was delivered at site. iii) The above firm had raised bills for the sale of material
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 7 of 11 between April, 97 to March 98 iv) The payments were made by crossed account payee cheques v) The account was finally settled on 30.03.99 vi) Complete evidences in respect of payments along with copy of bank statement evidencing payments made through proper banking channels was verified during assessment proceedings and available on record. vii) Complete record of purchase bills and statement of account showing dates of receipt of material in the form of delivery cum invoice are made available and were verified during assessment proceedings.
Copies of bills etc. were filed during the course of assessment and reassessment proceedings. The appellant firm had effected payments towards these purchases by crossed account payee cheques and this fact was also submitted before the Learned Assessing Officer during the course of original assessment proceedings and reassessment proceedings.
Merely because the appellant could not produce the proprietor of the firm as the matter was very old and the appellant firm did not have any business relation with these proprietors cannot be made a basis for levy of penalty.”
The case made out by the assessee before the first appellate authority is this that the details of purchase were duly furnished by the assessee during both the assessment and the reassessment proceedings. Payments for those purchases were made to the parties by the assessee firm by crossed account payee cheques, facts of which were also duly placed before the ld. Assessing Officer during the course of original assessment proceedings and reassessment proceedings too. Admittedly the matter is very old and the assessee does not have any business relationship with the proprietors. Merely because the assessee failed to produce the proprietor of the firm the same cannot be made a basis for levying of penalty. Upon considering the order of assessment, the penalty order passed by the Assessing Officer, the written submissions preferred by the assessee in support of his case and the judgement relied upon by the assessee, the ld. CIT(A) observed as follows :-
“3.3. I have considered the submissions of the learned Authorized Representative and the order of the Assessing Officer. I have also gone through the order passed by Ld. CIT (A) dated 27.03.2002 in respect of original assessment proceedings and order dated 03.12.2012 passed in assessment proceedings made u/s 143 (3) r.w.s. 254. I have also gone through the detailed order passed by the Hon'ble Tribunal, Ahmedabad. It is an undisputed fact that the appellant had shown purchase from various parties and payments to them were made by crossed account payee cheques. It is also seen that the
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 8 of 11 appellant had sold these material to various parties and had disclosed sales in the Profit & Loss Account.
The Learned Counsel for the appellant submitted that the appeal filed by the appellant firm is pending before the Hon'ble Tribunal, Ahmedabad for adjudication. The findings in the assessment order have also been reviewed by me. The main contention of the counsel for the appellant firm is that merely because the appellant firm could not substantiate the purchases despite various evidences filed by it during the course of original assessment proceedings cannot be made a ground for levy of penalty. It is submitted that the provisions of section 271(1)(c) are applicable in a case where the appellant has not been able to substantiate with evidences the expenses incurred by it. In the instant case the appellant had submitted all the evidences available with it and these evidences has not been found to be incorrect or fraudulent by both the Assessing Officer or by the CIT (Appeals). Here, it is pertinent to refer to the specific directions of Hon'ble ITAT setting aside the matter to the Assessing Officer for fresh consideration in view of following directions :-
(i) Make necessary further inquiries from the (a) concerned bank authorities or otherwise in respect of person making withdrawals in cash and (b) Sales Tax authorities, in respect of genuineness of transactions in purchase; and
ii) Allow another opportunity to the taxpayer to (a) furnish the actual working of GP on account of trading and manufacturing of rubble, and kapchi grit etc. and its impact on the profitability of the year under consideration vis-avis preceding years, in the light of books of accounts and other records claimed to have been support of genuineness of the purchases.
3.4. It was not difficult to locate the 3 proprietors of five concerns namely Kiritkumar R Shah, Patel Magan Shankerbhai Patel and Ramanbhai Bhagwanbhai from the ITD application/PAN database of the Department which was available with the Assessing Officer. This has not been done. Enquiries done from Bank are also not conclusive as Assessing Officer himself has admitted in para 8 of his order that notice u/s 133(6) was issued to the Manager of Sevalia Urban Cooperative Bank in order to garner the information regarding the five parties. He was requested to provide the account No. of these parties w.e.f. F.Y. 1997-98 and to furnish the details about the persons who had withdrawn the amounts in cash. These queries were in compliance to the directions of Hon'ble ITAT and genuine attempt was made by the Assessing Officer to ascertain full facts from the bank. However, the Manager of the Bank could not furnish any detail which could be used as evidence against the assessee so far as penalty are concerned. Similarly, Assessing Officer attempted to conduct enquiry from the Sales Tax Deptt., but the report of the Inspector mentioned in the last lines of para 8 is not forthcoming from the assessment as well as penalty order. However, in
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 9 of 11 para 9 of the assessment order, Assessing Officer has mentioned that the local Sales Tax Officer showed his inability to furnish the required details as the Sales tax Registration Nos. are very old and are no more operational. Letter was also issued by the Assessing Officer to the Asstt. Commissioner of Sales tax, Godhra to collect information about one party M/s Bhagya Laxmi Trading Co., but from there too, no concrete information was made available to the Assessing Officer.
3.5. Thus, the directions of the Tribunal contained in para(i) above were complied by the Assessing Officer but he could not gather any conclusive or concrete evidence against the assessee. So far as directions in para (ii) regarding furnishing the actual working of GP on account of trading and manufacturing of rubble, and kapchi grit etc. and its impact on the profitability of the year under consideration vis-a-vis preceding years, in the light of books of accounts and other records are concerned, in the opinion of the Assessing Officer, the appellant has not been able to substantiate fully the reasons for shortfall in GP from 17.67% in earlier year to 8.37% this year. This aspect was dealt with great detail by the Ld.CIT(A) in first round of litigation on the basis of month wise quantitative details of rubble excavated from the mines, rubble purchased, rubble consumed, production and yield given in para 3.3 of his order. This was also compared with the month wise quantitative details of crushed stone viz. op. stock, production, sales, cl. stock and sales(in Rs.). Ld. CIT(A) in last few lines of para 3.12 of his order observed as under :-
"Once the quantitative details in the form of yield, production and sales are accepted by the Assessing Officer, it would be incorrect to hold that the purchases were bogus. Even the G.P. after starting manufacturing activities of Kapachi and Grit ranges between 6 to 8% and in subsequent years the appellant has disclosed GP rate ranging between 6-8%. In view of this, the addition made is also not justified on this score. The AO was not justified in treating the purchase bogus. The addition made by the AO of Rs.68,55,330/-is therefore, deleted."
Thus, in the assessment order made u/s 143 (3) r.w.s. 254, the main reasons that remained for making addition on account of bogus purchases were :-
(i) Non production of the five parties by the appellant before the Assessing Officer for examination and (ii) Estimation of G.P. in absence of non furnishing of G.P. by the assessee separately for sale of Rubble and Grit
3.6. In my considered opinion, Assessing Officer has rightly made addition in absence of complete details which were to be filed by the appellant as per the specific directions of Hon'ble ITAT. These additions are repetition of original assessment. When the matter was agitated by the assessee before Ld.CIT(A), he had upheld the same mainly relying upon the fact that there are inconsistency in the account opening forms of the five parties from whom the alleged purchases were made by the assessee amounting to Rs.68,55,330/- (para 4.1(e),(f) & (g) of the order). Secondly, appellant could not produce the
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 10 of 11 five parties before the Assessing Officer for examination (para 4.1(h) of the order) and thirdly, on the basis of lack of evidence of transportation of material purchased by the assessee from these five parties as well as lack of correlation between royalty paid by the appellant and the rubble excavation shown by the appellant. Ld. CIT(A) has observed that considering the amount of royalty paid by the appellant it could have excavated 12870 m3 of rubble instead of production of 87165 m3 shown by the appellant. Considering these facts, further illegal excavation of 71873.51 cubic meters (quantity claimed to be purchased by the appellant) cannot be totally ruled out. I agree with Ld. Authorized Representative that these evidences may be sufficient to make additions in assessment but cannot become the basis for levying penalty u/s 271(l)(c) of the Act. The counsel for the appellant has further submitted that merely because the matter was old and the assessee firm could not produce these facts, can at best be made a ground for making addition however, the same cannot be made a ground for levy of penalty. He referred to the decision of the of Hon'ble Madras High Court in the case of S. Hastimal Vs. CIT [1963] 49 ITR 273 (Madras) on Burden of proof be usefully referred to:-
"After the lapse of a decade, an assessee should not be placed upon the rack and called upon to explain not merely the origin and source of a capital contribution but the origin of origin and source of source as well. The difficulty on the part of any assessee to explain a transaction which stood place before a decade has to be borne in mind by the department and should under no circumstances be under estimated or taken advantage of by them".
He also submitted that penalty proceedings are separate from assessment proceedings and the findings in the assessment proceedings cannot be made a ground for levy of penalty. He relied on the following decisions: i) Anantharam Veerasinghaiah & Co. Vs. CIT 123 ITR 457 ii) Khoday Eswarsa & Sons 83 ITR 369 iii) Dilip N Shroff Vs. Jt. CIT 228 291 ITR 519
3.7. Ld. Authorized Representative has further submitted that the mere fact that the appellant had not been able to produce these parties cannot be made a ground for levy of penalty.' He also submitted that without these purchases, the assessee firm could not have effected sales and he further submitted that there was a difference of opinion between the Commissioners of Income Tax (Appeals) one of whom allowed the appeal at the time of original assessment proceedings and the other CIT(A) confirmed the addition in his order dated 05.01.2012. He, therefore, submitted that when the decisions of the Ld. CIT(A) itself were different from each other and the findings were based on the mere fact that the appellant had not be able to produce these parties after a period of decade cannot be made a ground for levy of penalty.”
He thus deleted the penalty levied under section 271(1)(c) particularly on the finding that no conclusive or clinching evidence of concealment has been found by the
ITA No.1032/Ahd/2016 Assessment Year: 1998-99 Page 11 of 11 Assessing Officer. Neither the Assessing Officer has been able to demonstrate that the assessee has given a false or concocted explanation in support of his case. The mens rea or guilty mind on the part of the assessee has in fact not been proved/reflected in the order imposing penalty made by the Assessing Officer. Merely because the assessee could not produce the purchasers/proprietors the imposition of penalty against the assessee on this ground cannot be said to be justified as rightly observed by the first appellate authority particularly when the Assessing Officer could get the details from the Banks/Sales Tax Department. Therefore, in the absence of conclusive or clinching evidence of concealment or mens rea on the part of the assessee as discussed above, the penalty cannot be levied against the assessee and thus we find no infirmity in the order of deletion of penalty as made by the ld. CIT(A). We find no reason to interfere with the same. Thus, the appeal preferred by the revenue has no legs to stand upon and thus dismissed.
In the result, appeal filed by the revenue is dismissed. Order pronounced in the open Court on this 22nd day of October, 2018.
Sd/- Sd/- PRAMOD KUMAR Ms. MADHUMITA ROY (Vice President) (Judicial Member) Ahmedabad, the 22nd day of October, 2018
PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad