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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
Per L.P. Sahu, Accountant Member:
This is an appeal filed by the assessee against the order of ld. CIT(A)-IX,
New Delhi dated 19.11.2013 for the assessment year 1994-95 challenging the
confirmation of penalty imposed u/s. 271(1)(c) of the IT Act, 1961
(hereinafter referred to as ‘the Act’) on the following grounds :
“1. The provisions of Section 27I(1)(C) read with Section 275 are not applicable at all.
The CIT (A) has erred in confirming the penalty levied by the A.O.
The Assessee has neither concealed nor filed inaccurate particulars of its income, thus the provisions of Section 271(1 )(c) are not applicable at all.
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There is no variation between returned income and assessed income thus the penalty levied is wrong.
The penalty is levied mechanically and thus be cancelled.
The CIT (A) has erred in holding that assessee tried to conceal its income by making wrong claims of the purchases from Agra parties.
The CIT (A) has erred in holding that assessee has failed to offer a correct explanation in respect of the facts material to the computation of total taxable income.
The CIT (A) has erred in holding that penalty is leviable on the amount of bogus purchases added u/s 69 of the Act.
The aforesaid grounds of appeal arc independent and without prejudice to one another.
Briefly stated, the facts of the case are that the return of income for the
A.Y. 1994-95 was filed by assessee on 30.11.1994 declaring at NIL. The
assessment order u/s. 143(3) was passed on 31.03.1997 at 'NIL' income after
certain additions/disallowances. The learned CIT (A) set aside the assessment
vide order dated 24.02.1998. Fresh assessment order was passed u/s 143(3)
dated 31.03.2000, whereby A.O. made certain additions in respect of Exports
to Dubai, purchase from certain suppliers of Agra and disallowance of interest
paid to banks. The deductions u/s. 80HHC & 80IA were restricted to business
income only, which resulted in assessment at total income of Rs.2,81,20,531/-.
The assessee being aggrieved again carried the matter in appeal before CIT (A)
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who vide order dated 15.02.2010 granted certain relief. However, addition
made by A.O. with regard to unexplained purchases from Agra suppliers was
confirmed amounting to Rs.1.60 Crore. The assessee did not challenge this
addition sustained by the ld. CIT(A) vide aforesaid order. The A.O., thereafter
gave effect to the order of ld. CIT (A) vide order u/s. 250/143(3) dated
12.012012 wherein the AO determined the total income at NIL as a result
deduction eligible to the assessee on total income because the entire turnover
of the assessee was by way of export eligible for 100% deduction u/s. 80HHC
and 30% deduction of income u/s. 80IA of the Act. Penalty u/s 271(1)(c) were
initiated against the assessee and after considering the submissions of the
assessee, the AO imposed a penalty of Rs.82,95,000/- vide order dated
25.03.2011 for concealment of income on account of bogus purchases shown
to have been made by assessee from Agra suppliers. The appellant challenged
the penalty order in appeal before the ld. CIT(A), who confirmed the same vide
impugned order. Aggrieved, the assessee is in appeal before the Tribunal.
During the course of hearing, the ld. Counsel for the assessee submitted
that since there is no variation in the income returned and the income
assessed, no penalty is leviable u/s. 271(1)(c) of the Act. It was submitted that
the assessee had furnished bill-wise and payment-wise details of the
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impugned purchases including the statement of accounts of the sellers.
Therefore, there is no reason to hold any concealment of particulars of income
or furnishing of inaccurate particulars of income, particularly when the
payments have been made through banking channels for which bank
statement was also filed before the authorities below. It was submitted that
the purchases from Agra were from suppliers in unorganized sector dealing in
leather products and inspite of best efforts, the confirmations could not be
filed. Therefore, once complete documents were available on record to
establish the purchase made, no penalty could be levied simply because
certain claim of assessee was not acceptable to the AO as held by Hon’ble
Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd., 322 ITR
158 (SC). It was submitted that even after disallowance on account of bogus
purchases, the taxable income of the assessee remained at Nil and the
appellant being a tax free company had no reason to make a wrong claim of
purchases. It was submitted that out of 18 suppliers of Agra, 7 parties stood
verified and the assessee could not manage the confirmations of remaining 11
parties due to adverse circumstances caused due to search conducted on
assessee in April, 1995, employees’ migration from the organization and the
purchases made from small suppliers of unorganized sectors of Agra.
Therefore, there being no deliberation act or omission on the part of assessee,
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the provisions of section 271(1)(c) of the Act could not be attracted in the
instant case. The ld. Counsel for the assessee, inter alia, relied on the following
decisions in addition to the reliance placed on the decisions, as are mentioned
in the order of ld. CIT(A) :
(i). CIT vs. Honeywell Dace (India) Ltd., 292 ITR 169 (Del.) (ii). Addl. CIT vs. Delhi Cloth & General Mills Co. Ltd., 157 ITR 822 (Del.) (iii). CIT vs. Oriental Power Cable Ltd., 303 ITR 49 (Raj.)
On the other hand, the ld. DR relying on the orders of the authorities
below, submitted that the penalty saddled against the assessee needs to be
affirmed, as the purchases shown by the assessee as noted above were found
to be bogus and the sellers from whom said purchases were made were found
non-existent. The appellant utterly failed to furnish the purchase vouchers as
well as the confirmations from the sellers from whom the appellant made the
alleged purchases. Therefore, the payment shown to have been made to such
fake parties, which were non-existent, amounts to concealment of income
liable for penalty u/s. 271(1)(c) of the Act and the ld. CIT(A) was justified in
confirming the penalty imposed by AO.
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We have considered the rival submissions and have gone through the
entire material available on record. First of all, we feel it appropriate to
reproduce the findings of the ld. CIT(A) in appeal of assessee, on the
addition/disallowance, on the basis of which the impugned penalty has been
imposed u/s. 271(1)(c) of the Act, which reads as under :
"Ground No. 5 is with regard to addition on account of purchase from Agra parties amounting to Rs. 1,60,23,000/-. I find that detailed investigation was undertaken before making this addition. The A.O along with his Inspector visited Agra to verify the transactions but he could verify only seven parties and several others could not be verified. The ADIT Agra vide letter dated 13.10.1995 had informed that none of the parties were available for verification and were found to be bogus. Similar enquiries were made by CIT (C) II through CIT Agra and traders were found to be non-traceable. In its submissions before the A.O vide letter dated 14.03.1997, the appellant company furnished details giving quantity purchased and explained that payments were through cheques duly recorded in bank account. The A.O did not accept the arguments of the company as it could not refute or rebut the findings given in the report of ADIT & CIT, Agra, wherein the very existence of those parties were negated. Before me also the appellant has filed statement of account along with bank statement evidencing payment to those parties. However, it has not furnished any confirmations or other evidences to establish genuineness of the parties. Mere filling statement of accounts and bank statement are not sufficient to establish that such purchases were genuine and for the business purposes. In view of the clear findings of the A.O based on sound investigation carried out before making the disallowance and as the appellant has not been able to controvert the findings with evidence, the addition made on account of purchases from Agra is sustained."
The Record reveals that these findings of the ld. CIT(A) are admitted to
the assessee, as the same have not been challenged further. It is also an
admitted fact that the appellant utterly failed to produce the purchase
7 ITA No.116/Del./2014
vouchers through which the alleged purchases were made as also the
confirmations of any of the 11 suppliers of Agra, which were found fake and
bogus on investigation, as noted above. The adverse circumstances, under
which the assessee failed to file confirmations or the purchase vouchers, as
stated above, are not supported by any evidence on record. We, therefore, find
no justification to discard the finding of the ld. CIT(A) to the effect that an
established businessman like assessee cannot be expected to conduct business
or enter into the transactions of a high volume with unreliable and
untraceable suppliers having bank accounts. Resultantly, the payment-wise
and bill-wise details of purchases furnished by the assessee were found
unsubstantiated resulting into addition/disallowance on account of bogus
purchases. In the case of CIT vs. Oriental Power cable Ltd. (supra) relied by
the assessee, the claim which was found wrong by the Revenue authorities,
was found by the Hon’ble Court as debatable and under such circumstances,
the Hon’ble Court held that no question of law arises in that case. Such
situation is not here in the present case. Similarly, in the case of Delhi Cloth
& General Mills Co. Ltd. (supra), the dispute was with regard to the nature of
expenditure claimed – whether capital expenditure or revenue expenditure.
This decision is also not applicable to the present case. The decision in the case
of Honeywell Dace (India) Ltd. (supra) also does not render any help to the
8 ITA No.116/Del./2014
assessee for the reason that in that the dispute of set off of losses was involved
in that case, which was not considered relevant for furnishing of inaccurate
particulars of income. In the instant case, the assessee has furnished the
details of such purchases which were found bogus and from such parties
which were not found in existence.
The dominant contention of the assessee has been that penalty is not
leviable against the assessee, being 100% export oriented unit covered under
deduction u/s 80HHC due to which the taxable income returned and assessed
is at NIL. The provision of section 271(1)(c) postulates imposition of penalty
for furnishing of inaccurate particulars and concealment of income. In this
case, the details of purchases furnished by the assessee were found inaccurate
resulting into concealment of income, as the sellers, from whom the alleged
purchases were shown to have been made, were found bogus and non-
existent. It is an admitted fact that the assessee failed to furnish the purchase
vouchers and confirmations of the alleged sellers. In view of the above, it is
clear that the explanation offered by the assessee with respect to payments
alleged to have been made from suppliers of Agra against purchases, was
found false and unacceptable. Therefore, the ld. Authorities below appear to
have rightly imposed penalty against the assessee, irrespective of the fact that
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the total income including the impugned disallowance was eligible for
deduction u/s. 80HHC and 80IA to the assessee being 100% export oriented
unit. In view of the provisions of section 271(1)(c) read with Explanations
appended thereto, in our considered opinion, the eligibility for 100%
deductions u/s. 80HHC or 80IA, would not mitigate the rigors of penal
provisions for the reason the provisions of section 80HHC and 80IA merely
provide for tax holiday on the turnover of assessee, but cannot exonerate the
assessee from penal consequences as per provisions of section 271(1)(c) of
the Act. We also get support from the decision of Hon’ble Suspreme Court in
the case of JCIT vs. Saheli Leasing & Industries Ltd., 324 ITR 170 (SC), wherein
the Hon’ble Court held as under :
“The purpose behind s. 271(1)(c) is to penalise the assessee for (a) concealing particulars of income and/or (b) furnishing inaccurate particulars of such income. Whether income returned was a profit or loss, was really of no consequence. Therefore, even if no tax was payable, the penalty was still leviable. It is in that context, to be noted that even prior to the amendment by the Finance Act, 2002 w.e.f. 1st April, 2003, it could not be read to mean that if no tax was payable by the assessee, due to filing of return, disclosing loss, the assessee was not liable to pay penalty even if the assessee had concealed and/or furnished inaccurate particulars. Some of the High Courts had taken a contrary view, thus, Parliament in its wisdom thought it fit to clarify the position by changing the expression "any" by "if any". Thus, this was not a substantive amendment which created imposition of penalty for the first time. The amendment by the Finance Act of the relevant year as specifically noted in the Notes on Clauses shows that proposed amendment was clarificatory in nature and would apply to all assessments even prior to the asst. yr. 2003-04. Therefore, even during the period between 1st
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April, 1976 and 1st April, 2003, the position was that penalty was still leviable in a case where addition of concealed income reduces the returned loss. The necessary consequence thereof would be that even if assessee has disclosed nil income and on verification of the record, it is found that certain income has been concealed or has wrongly been shown, in that case, penalty can still be levied.—Saheli Leasing & Industries Ltd. (judgment dt. 8th Aug., 2006 of the Gujarat High Court in Tax Appeal No. 1904 of 2005) set aside; CIT vs. Gold Coin Health Food (P) Ltd. (2008) 218 CTR (SC) 359 : (2008) 11 DTR (SC) 185 : (2008) 304 ITR 308 (SC) followed; CIT vs. Elphinstone Spinning & Weaving Mills Co. Ltd. (1960) 40 ITR 142 (SC) distinguished.
Hon’ble Apex Court in the case of CIT vs. Gold Coin Health Food (P) Ltd., 304
ITR 308 (SC) has observed as under :
Explanation 4 to s. 271(1)(c) intended to levy the penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income but also in a case where addition of concealed income reduces the returned loss and finally the assessed income is also a loss; the said Explanation being clarificatory is applicable retrospectively.
Hon’ble Supreme Court in UOI vs. Dharmendra Textile Processors, 306 ITR
277 has laid down the principle that mens rea is not sine qua non for
imposition of penalty being a civil liability.
In view of the attending facts and circumstances of the case, the
decisions cited above and the aforesaid discussion, we conclude that the
penalty imposed by AO and sustained by the ld. CIT(A) is based on sound
11 ITA No.116/Del./2014
footings and deserve to be sustained. Accordingly, the appeal of the assessee
deserves to be dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 25.11.2016.
Sd/- Sd/- (I.C. SUDHIR) (L.P. SAHU) Judicial Member Accountant Member
Dated : 25.11.2016 *aks/-
Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant. Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi