THE DY. CIT, CIRCLE-6,, AHMEDABAD vs. M/S. ZODIAC EICHER,, AHMEDABAD

PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

This Revenue’s appeal for A.Y. 2006-07, arises from order of the CIT(A)- IX, Ahmedabad dated 15-05-2014, in deleting the penalty of Rs. 13,46,400/-, in proceedings under section 271(1)(c) of the Income Tax Act, 1961; in short “the Act”.

scrutiny the assessing officer has noticed that assessee has debited the following expenses in the profit and loss account 1) Heavy Cultivator Exp.Rs.75.46 lacs 2) Light Cultivator Exp. Rs.41.60 lacs 3) Medium Cultivator Exp. Rs.32.95 lacs The assessee has submitted that these expenses were incurred in respect of purchase of various types of cultivators and distributed the same as complimentary to the purchasers of the tractors. The assessee was asked to furnish the copies of bills regarding purchase of various kinds of cultivators. The assessee has submitted the same with its submission dated the 20/11/2008 as elaborated at page number 3 to 8 of the assessment order showing the name and address of the parties, bill number and date, the amount and number of cultivators purchased. Thereafter the assessing officer has conducted inquiries through the assistant director of income tax investigation/ Dy. Director of income tax investigation at various stations as Surat, Jamnagar, Gandhi Dham, Rajkot, Bhavnagar etc. and at various other places inquiries were also conducted through Income tax inspectors. The DDIT/ADIT have reported after conducting inquiries from the aforesaid places that no such parties are existed at the given addresses and further reported that invoices furnished by the assessee were bogus. The assessing officer has elaborated the finding of these inquiries at pages 15 to 20 of the assessment order. The assessing officer has also examined sub- dealers Mr. Bhagwanbhai Patel partners of M/s Cheharkrupa Tractors, Virangam and he has admitted that there was no such scheme to provide free complimentary cultivators to the purchasers of tractors. Thereafter the assessee vide its letter dated 19/12/2008 offered 25% of the purchase expenses of cultivators as it's income for the year under consideration. The assessing officer has also conducted inquiries from other sub- dealers of the assessee who have also admitted that no cultivators were provided to the buyers of tractors. Consequently the assessing officer has made an addition of Rs.40

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lakh on failing of the assessee to prove the genuineness of the purchases of cultivators which he has found to be bogus as elaborated supra in this order. During the course of penalty proceedings u/s. 271(1)(c) of the act , the assessee has explained that during the course of assessment proceedings, it has submitted a letter dated 17th December, 2008 thereby the amount of Rs. 40 lacs had been offered as additional income of the assessee for the simple reason that it is quite difficult rather impossible to produce those small self employed persons from un-organized sector of the rural areas to prove to the satisfaction of the assessing officer. The assessing officer has not accepted the explanation of the assessee. The assessing officer has stated that inquiries reports of ADIT/DDIT, inspectors and admission made by sub dealers and other persons disaffirmed the claim of the assessee about the complimentary distribution of cultivators to the buyers of tractors. He has also stated that no free cultivators either by his firm or M/s Zodiac Eicher, Ahmedabad had given to the purchasers of the tractors. During the course of assessment proceedings, when the assessing officer had brought the fact of non-existence of the parties from whom the assessee has claimed the purchases of various kinds of cultivators, the assessee has come forward with a letter dated 19th December, 2008 and offered 25% of the purchase expenses of cultivators as its income for the year under consideration. The above facts and material substantiate that claim of the cultivators expenditure were bogus as assesse could not prove genuineness of these expenditure in spite of giving a number of opportunities before the assessing officer during the core course of assessment proceeding. Consequently the assessing officer has levied penalty of Rs. 13,46,400/-for furnishing inaccurate particulars of income resulting in concealment of income.

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Mehsana who has reported that 37 tractors were supplied through M/s Zodiac Eicher but neither any promotional scheme was introduced nor any complimentary equipment has been given to the farmers through Zodiac Eicher Ahmedabad. M/s Shree Ambica Traders Bharuch had sold 61 tractors to various farmers after purchasing the tractors from M/s Zodiac Eicher has also reported that no complimentary cultivators have been provided either directly or through M/s Zodiac Eicher. It is established from the above that assessee has submitted bills of purchase from 21 parties (105) bills and all the bills were found to be bogus as per the inquiries conducted. It is evident from the above facts that assessing officer has conducted indepth inquiries with the help of ADIT/DDIT at various stations such as Surat,Rajkot,Gandhidham,Bhavnagar etc. that revealed that none of the parties were in existence and the purchases shown by the assessee were bogus. Subsequently the assessee has furnished merely affidavits of the 21 persons and 2 sub- dealers and could not produce any person/party for examination to controvert the findings of the assessing officer. Section 271(1)(c) of the Act has a direct bearing on the controversy and, therefore, it is salutary upon us to take note of the relevant provisions of section 271(1)(c) along with Explanation 1 which read as under: "271. Failure to furnish returns, comply with notices, concealment of income, etc. (1) If the Assessing Officer or the Commissioner (Appeals) or the CIT in the course of any proceedings under this Act, is satisfied that any person (a) and (b)** ** ** (c) has concealed the particulars of his income or furnished inaccurate particulars of such income. He may direct that such person shall pay by way of penalty. (i) and (Income-tax Officer,)** ** ** (iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits: Explanation 1.- Where 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 the Commissioner(Appeals) or the CIT 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 bona fide and that all the facts relating to the I.T.A No. 2258/Ahd/2014 A.Y. 2006-07 Page No 6 DCIT vs. M/s. Zodiac Eicher

same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this subsection, be deemed to represent the income in respect of which particulars have been concealed". A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeals); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any I.T.A No. 2258/Ahd/2014 A.Y. 2006-07 Page No 7 DCIT vs. M/s. Zodiac Eicher

fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee, for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished. Here the assessee has failed to substantiate his explanation as it has failed to controvert the fact of non existence of even a single party from whom the assessee has claimed that the purchases of various kinds of cultivators was made. On its failure to substantiate its explanation the assessee has come forward with a letter dated 19th December, 2008 and offered 25% of the purchase expenses of cultivators as its income for the year under consideration. After considering these facts and evidences, it is clear that asssessee has come forward to make disclosure of 25% of the expenditure as undisclosed income of the assessee because it failed to prove the genuineness of the aforesaid purchases in spite of giving a number of opportunities by the assessing officer. In the case of Vidya Sagar Oswal v. CIT [1977] 108 ITR 861 (Punj. & Har.), the facts of the case were as follows:- The Hon’ble Punjab and Haryana High Court held as under as per Head note: "Held, that the totality of the circumstances in the present case led to the irresistible conclusion that the assessee had consciously concealed the particulars of income and had deliberately furnished inaccurate particulars in order to conceal the income. In these days of high prices, even an ordinary man cannot live on Rs. 2,000 a year. The assessee who had income of more than Rs. 86,000 and was the managing director of a leading mill in Ludhiana and whose family consisted of his wife, four sons and a daughter should have spent more than Rs. 500 per month for his household expenses. The domestic expensesa ssestimated by the Income-tax Officer were rather ridiculously on the low side. The Tribunal was right in holding that the assessee was liable to paypenalty."

However in the case of the assessee it is not merely estimation of income but it has been proved that the various expenses claimed in the Profit and Loss Account filed with the return of income are fictitious because they are not I.T.A No. 2258/Ahd/2014 A.Y. 2006-07 Page No 8 DCIT vs. M/s. Zodiac Eicher

verifiable at all. We observe that in the case of the assessee even the part of the basic material that is evidence of existence of the sellers of the cultivators were not established. We further observe that it is imperative and fundamental liability of the assessee to substantiate the genuineness of incurring of these expenditure. Even the assessee has completely failed to controvert the reason for non existence of the sellers of cultivators. In view of above facts the disclosure made by the assessee on failing to controvert the findings of the assessing officer cannot be said that it is estimated addition without any basis. Resorting to estimate in this case was not an estimate without basis but with a clear cut background material. Therefore, we find that estimation of purchases to the extent of 25% is not a general estimation but it is based on specific undisputed facts that the genuineness of the purchase was not proved because it was substantiated with relevant material and complete modus operandi of receiving bogus bills of purchases without any delivery of goods. We further observe that there is no rule that penalty for concealment under section 271(1)(c ) cannot be imposed where the income is estimated. The levy of penalty under section 271(1)(c) depends on the facts and circumstances of each case. If the concealment of income is apparent from the record, there is no reason why penalty under section 271(1)(c) cannot be imposed for concealment of income. Looking to the above facts and circumstances, we consider that the decision of the ld. CIT(A) is not justified ,therefore we set aside the order of the Ld.CIT(A) and upheld the penalty order of the assessing officer. Accordingly, the appeal of the revenue is allowed.

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आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:-