Penalty 271(1)(c) Merely if suppliers not traced at given address not indicative of concealment or furnishing inaccurate particulars

Penalty 271(1)(c) Merely if suppliers not traced at given address not indicative of concealment of income or furnishing of inaccurate particulars-ITAT

suppliers not traced at given address

ABCAUS Case Law Citation:
ABCAUS 1231 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the CIT(A) qua confirmation of penalty u/s 271(1)(c) of Income Tax Act, 1961 (‘the Act’).

Assessment Year : 2010-11
Date/Month of Pronouncement: May, 2017

Important Case Laws Cited relied upon:
CIT Vs. SSA’S Emerald Meadows  (SC)
CIT Vs. Samson Perinchery (Bombay High Court)
CIT Vs. Manjunatha Cotton & Ginning Factory (Karnataka High Court)
Wadhwa Estate & Developers Vs. ACIT (Mumbai ITAT)
CIT Vs. Reliance Petro products [2010 322 ITR 158 Supreme Court]
CIT Vs. Larsen & Toubro Ltd. [2014 366 ITR 502 Bombay High Court]
CIT Vs. Sonal Construction Co. [55 taxmnn.com 425 Gujarat High Court]
M.G.Contractors Pvt. Ltd. Vs. DCIT [Delhi Tribunal]
Anita Builders Vs. ACIT [Jodhpur Tribunal]

Brief Facts of the Case:
The appellant assessee was engaged in the business of crane hiring and maintenance. The assessment was framed by Assessing Officer (‘AO’) u/s 143(3) after making addition, inter-alia, on account of unexplained expenditure u/s 69C of the Act. During the assessment proceedings, pursuant to information obtained from Sales Tax department, certain repair & maintenance items purchased by assessee from five suppliers was treated as bogus and added u/s 69C as unexplained expenditure as the assessee could not produce confirmation from alleged bogus supplier,

This led to initiation of penalty u/s 271(1)(c) and consequently a notice u/s 274 was issued to the assessee which finally resulted into the imposition of impugned penalty.

The AO contested the penalty order but without any success before CIT(A). Aggrieved, the assessee was in appeal before the Tribunal.

Contentions of the appellant assessee:
The assessee placing reliance on various pronouncements contended the show cause notice issued u/s 274 was defective as the relevant clause as applicable to the case of the assessee was not appropriately marked and no specific charge was mentioned therein for which the penalty was being initiated by the AO.  On merit it was contended that the AO had wrongly invoked Section 69C to Bogus purchases as the transactions were duly recorded in the books of account and the payments were made through banking channels from accounts which were duly reflected in the books of accounts. Further, the assessee accepted the quantum additions and did not contest the same any further in view of the fact that it could not obtain confirmatory letters from the alleged suppliers as they could not be traced at the relevant time. Nevertheless, the assessee was in possession of purchase invoices, delivery challans, ledger extracts thereof and all the payments were through banking channels. Therefore, the assessee voluntarily offered the quantum additions by filing revised computation of income during quantum proceedings which was in good faith, to buy peace and to avoid any further litigation. The AO had duly accepted the additions offered by the assessee without making any efforts to obtain confirmation from the alleged suppliers. In view of all these factors, the assessee stood good chance of succeeding in quantum appeal, however, it refrained from doing so only to buy peace of mind and avoid further litigation.

Contention of the Respondent Revenue:
Departmental representative placed reliance on Section 292B and contended that mere defect in the notice do not vitiates the penalty proceedings and no prejudice was caused to the assessee by non- marking of appropriate clause. The assessee very well knew the grounds for which he was being penalized and the AO with due application of mind initiated penalty proceedings in quantum assessment for furnishing of inaccurate particulars of income and finally levied the penalty on the same ground. Moreover, the assessee actively contested the penalty proceedings before AO and therefore, the legal grounds, being only hyper-technical in nature, do not carry much weight. Further, on merits, it was pointed that the assessee’s conduct proved the point that the purchases in dispute were bogus and the assessee, on being scrutinized by the revenue, accepted the same and revised the computation of income despite being having the possession of purchase documents. Therefore, the assessee’s contention that the addition was offered voluntarily, to buy peace of mind and to avoid vexed litigation holds no strength.

Observations made by the Tribunal:

On Legal Ground:
It was observed that in the quantum order, AO after due deliberations, clearly initiated the penalty proceedings for furnishing of inaccurate particulars which showed due application of mind qua penalty proceedings. The penalty was finally levied on the same ground as well. Therefore, mere marking of relevant clause, on the facts of the case, had not caused any prejudice to the assessee particularly when the assessee voluntarily offered certain additions in the quantum proceedings with a specific request to AO for not initiating the penalty against the same. The assessee very well knew the charges / grounds for which he was being penalized and he actively contested the penalty before the AO. Also the provisions of Section 292B cured minor defect in the various notices as the notice in substance and effect was in conformity with the intent and purpose of the act.

On Merits:
The ITAT observed that find that first of all Section 69C could not be applied to the facts of the case as the payments were through banking channels which were duly reflected in the books of accounts and therefore, there was no unexplained expenditure within the meaning of Section 69C incurred by the assessee.

Further, it was found that the assessee was in possession of purchase invoices and various other documentary evidences qua these purchases and a bare perusal of the invoices revealed that the assessee had purchased consumables etc. from the alleged bogus suppliers, which are connected, at least to some extent, with the business of the assessee.

The assessee, during quantum proceedings itself filed revised computation of income after disallowing the alleged bogus purchases by citing the reason that the suppliers were not traceable during assessment proceedings. Nevertheless, the assessee was in possession of vital evidences in his possession to prima facie substantiate his purchases to some extent particularly when the payments were though banking channels.

The ITAT opined that merely because the suppliers could not be traced at the given address would not automatically lead to a conclusion that there was concealment of income or furnishing of inaccurate particulars by the assessee.

According to the Tribunal, the assessee made a claim which was bona fide and the same was coupled with documentary evidences but the same remained inconclusive for want of confirmation from the suppliers.

Held:
It was held that the overall facts of the case did not justify imposition of penalty and accordingly it was deleted on merits of the case. The appeal of the assessee was allowed.

suppliers not traced at given address
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No Penalty 271(1)(c) for disallowance 43B if quantum not disputed and following mercantile accounting it could be debited to PL A/c – ITAT

No Penalty 271(1)(c) for disallowance 43B if quantum not disputed and following mercantile accounting it could be debited to Profit and Loss A/c – ITAT

No Penalty 271(1)(c) for disallowance 43B

ABCAUS Case Law Citation:
ABCAUS 1230 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the CIT(A) qua confirmation of penalty u/s 271(1)(c) of Income Tax Act, 1961 (‘the Act’).

Assessment Year : 2006-07
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The appellant assessee was a limited company which was assessed u/s 143(3) wherein disallowances were made regarding depreciation claimed u/s 32 on the premises that no business operations were carried on by the assessee during the year & for disallowance made u/s 43B regarding claim of interest. Thereafter, the Assessing Officer (‘AO’) initiated penalty proceedings for furnishing of inaccurate particulars of income by issuance of notice u/s 274 read with Section 271(1)(c) of the Act.

Finally, the AO imposed the penalty which was confirmed by the CIT(A).

Aggrieved, the assessee was in appeal before the Tribunal.

Contentions of the appellant assessee:
It was submitted that due to adverse business conditions, the business of the assessee was adversely affected and therefore, no significant business operations could be carried out during the impugned AY. Nevertheless, the suspension of business was only temporary in nature. Also, the block of assets did not cease in the books of accounts and as the suspension in business was temporary, depreciation thereof was allowable to the assessee as per various judicial pronouncements. Regarding disallowance u/s 43B it was contended that the disallowance was made only due to non-payment within the stipulated time period. However, the nature or quantum of the same was never in dispute and the assessee, following mercantile system of accounting, was quite eligible to debit the same in the Profit & Loss Account and therefore, no penalty against such disallowance could be imposed as per the decision of Hon’ble Madras High Court in CIT Vs. MSK Constructions (P) Ltd.

It was further submitted that the assessee incurred huge losses during the impugned AY but the same could not be carried forward by him in the next AY in view of the fact that the return of income was filed belatedly which made assessee ineligible to carry forward the said business losses and therefore, the assessee stood to gain nothing by making inaccurate claim.  

Contention of the Respondent Revenue:
It was contended that the assessee did not carry on any business during the year but still claimed the said expenditure fully knowing that the same were not admissible. Upon being caught by the department in scrutiny proceedings, the assessee accepted the quantum additions and did not contested the same any further which, in itself, casted a doubt upon the conduct of the assessee and therefore the penalty was rightly imposed.

Observations made by the Tribunal:
The Tribunal found that the assessee had suffered disallowance u/s 32 against depreciation & u/s 43B due to non-payment of certain interest expenses within stipulated period of time. It was not in dispute that the assessee did not carry out any business activity during the year. It is further noted that the block of asset in the books of accounts did not cease to exist and the assessee had duly explained that the suspension in business was temporary which could not be controverted by the revenue.

The ITAT found that all those factors gave strength to the various arguments of the assessee. Regarding the addition u/s 43B, it was found that the nature or quantum thereof was not in dispute and the assessee, following mercantile system of accounting could debit the same in his Profit & Loss Account. It was only due to the specific provisions of Section 43B that it has suffered the said disallowance. Therefore, on the basis of these factors, the ITAT opined that there were no furnishing of inaccurate particulars of income by the assessee and the penalty deserved to be deleted.

Held:
The ITAT placing reliance on decision of the Hon’ble Madras High court, deleted the penalty and allowed assessee’s appeal on merits.

No Penalty 271(1)(c) for disallowance 43B
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Penalty 271(1)(c) Non-deletion of few words not invalidated notice when relevant clause was duly ticked-ITAT

Penalty 271(1)(c) Non-deletion of few words not invalidated notice or caused any prejudice to the assessee when relevant clause was duly ticked-ITAT 

Penalty 271(1)(c) Non-deletion of few words

ABCAUS Case Law Citation:
ABCAUS 1229 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the CIT(A) qua confirmation of penalty u/s 271(1)(c) of Income Tax Act, 1961 (‘the Act’).

Assessment Year : 2006-07
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The appellant assessee was a limited company which was assessed u/s 143(3) wherein disallowances were made regarding depreciation claimed u/s 32 & for interest u/s 43B of the Act. Thereafter, the Assessing Officer (‘AO’) initiated penalty proceedings for furnishing of inaccurate particulars of income by issuance of notice u/s 274 read with Section 271(1)(c) of the Act.

Finally, the AO imposed the penalty of which was contested without any success before the CIT(A).

Aggrieved, the assessee was in appeal before the Tribunal.

Contentions of the appellant assessee:
The Assessee raised additional ground of appeal assailing the imposition of penalty on legal grounds by contending that the notice issued u/s 274 was defective as only a tick-mark was placed against the clause ‘have concealed the particulars of your income or furnished inaccurate particulars of such income’ without deleting the appropriate words which vitiates the penalty proceedings. Reliance was placed on the judgments of Apex Court in the case of CIT Vs. SSA’S Emerald Meadows & Hon’ble Karnataka High Court in CIT Vs. Manjunatha Cotton & Ginning Factory

Contention of the Respondent Revenue:
The Department placed reliance on Section 292B and contended that mere defect in the notice do not vitiates the penalty proceedings and no prejudice was caused to the assessee by non deletion of few words. The assessee was very well knew the grounds for which he was being penalized and the AO with due application of mind initiated penalty proceedings in quantum assessment for furnishing of inaccurate particulars of income and finally levied the penalty on the same ground. Moreover, the assessee actively contested the penalty proceedings before AO and therefore, the legal grounds, being only hyper-technical in nature, did not carry much weight.

Observations made by the Tribunal:
The ITAT observed that a perusal of quantum order revealed that the penalty was initiated for furnishing of inaccurate particulars and finally the same was levied on the same ground. It was noticed that notice u/s 274 was duly served on the assessee and the relevant clause of the standard printed form was duly ticked by the AO which showed due application of mind qua penalty proceedings.

The Tribunal opined that mere non-deletion of few words, on the facts of the case, had not caused any prejudiced to the assessee particularly when the penalty proceedings were actively contested by him before the AO. It was observed that the assessee, at all times, was aware of the grounds for which he was being penalized.

It was observed that the provisions of Section 292B also cures minor defect in the notice provided such notice in substance and effect was in conformity with the intent and purpose of the act. On overall facts and circumstances, the ITAT found that such condition was fulfilled in the instant case.

The Tribunal found that the revenue’s Special Leave Petition (SLP) was dismissed by the Apex court in the case relied by the assessee which in turn, relied upon the judgment rendered in CIT Vs. Manjunatha Cotton & Ginning Factory. However after perusing the ratio of the judgment rendered in CIT Vs. Manjunatha Cotton & Ginning Factory the ITAT observed that the assessee’s appeal was allowed by the Hon’ble High court after considering the multiple factors and not solely on the basis of defect in notice u/s 274.

Therefore, the ITAT opined that the penalty could not be deleted merely on the basis of defect pointed out in the notice and therefore, the legal ground raised was rejected.

Held:
The ITAT rejected the legal ground raised by the assessee.

Penalty 271(1)(c) Non-deletion of few words
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Bogus purchases-when sales not disputed entire addition not warranted. ITAT estimated addition @12.5% of alleged bogus purchases

Bogus purchases-when sales not disputed entire addition not warranted. ITAT estimated addition @12.5% of alleged bogus purchases 

Bogus purchases-when sales not disputed

ABCAUS Case Law Citation:
ABCAUS 1228 (2017) (05) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the CIT(A) qua confirmation of addition of bogus purchases to the extent of 25%.

Assessment Year : 2009-10
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The assessee was an individual and engaged as dealer of cement, cement sheet, steel and other building material under a proprietorship firm.  The case of the assessee was scrutinised u/s 143(3) read with Section 147 and the Assessing Officer (AO) determined the total income of the assessee after making addition on account of bogus purchases for Rs. 36,72,973/-.

The reassessment proceedings had been initiated pursuant to receipt of certain information from Sales Tax Department wherein certain dealers were found to have indulged in the issuance of accommodation purchases bills and the assessee’s name figured in the list of beneficiaries of such accommodation bills. Consequently, the case of the assessee was reopened u/s 147 by issuance of notice u/s 148. The assessee vide notice u/s 142(1) was asked to furnish the requisite information / purchase details with respect to 8 suppliers which were listed as suspicious dealers and from whom the assessee had made the impugned purchases.

The assessee had made aggregate purchase of Rs.36,72,973/- from the said suppliers to whom notices u/s 133(6) were issued but could not be served for want of availability of these concerns at the given addresses. Upon being confronted, the assessee submitted copies of purchase bills, transport receipts etc. to substantiate the purchases and contended that the purchases were genuine. However, not convinced, AO rejected assessee’s contentions and made the impugned additions.

The assessee assailed the additions made by the AO by filing appeal before CIT(A) who after considering the factual matrix and placing reliance on various judicial pronouncements, restricted the impugned additions to 25%. Still aggrieved, the assessee was in appeal before the ITAT.

Contentions of the appellant assessee:
It was contended that the assessee was in possession of various purchase documents coupled with payment proof through banking channels and therefore, the purchases could not be doubted merely on the basis of outcome of 133(6) notices. The assessee, being a trader, sold the goods which were duly accepted by the revenue and the assessee has reconciled the quantitative details. It was further contended that even otherwise estimation of profit @25% was on the higher side as earning this much of profit in assessee’s business was not possible.

Contention of the Respondent Revenue:
The Departmental contended that adequate relief has already been provided to the assessee by CIT(A) despite being indulging in bogus purchases and therefore, the assessee deserved no further relief as the onus to substantiate the purchases squarely lied on the assessee which he had failed to discharge.

Observations made by the Tribunal:
The ITAT found that the assessee, on one hand, could not produce the supplier or even the correct addresses of these suppliers despite having been made heavy purchases from these parties. Similarly, the revenue, on the other hand, had also failed to disprove the claim of the assessee conclusively as it could not controvert the quantitative details or sales revenue earned by the assessee.

Thus, the Tribunal opined that there were lapses on both the sides. The Tribunal, invariably, in all such cases, have taken a stand that even if presuming that all purchases were bogus, entire addition thereof was not warranted for particularly when the sales were not in dispute and the assessee provided quantitative details and the addition, if any, which has to be made in all such cases is to account for profit element embedded in such purchase transactions.

Therefore, the ITAT estimated the addition @12.5% of alleged bogus purchases subject to profit already declared on these purchases.

Held:
The matter is restored back to the file of AO for limited purpose of calculating the final additions to be made in the hands of the assessee. The assessee, was directed to provide necessary information in this regard failing which the AO shall be at liberty to decide on the basis of material available on record.

Bogus purchases-when sales not disputed
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