No concealment penalty on circumstantial evidence of bogus purchases where income was estimated

No concealment penalty based on circumstantial evidence of bogus purchases where the income was estimated on the basis of circumstances brought on record

ABCAUS Case Law Citation:
ABCAUS 2575  (2018) (10) ITAT

Important Case Laws Cited/relied upon by the parties:
CIT Vs. Gujarat Ambuja Export Ltd.
Sanjay Oilcake Industries Vs. CIT, (2009) 316 ITR 274 (Guj)
Rameshchandra A Shah Vs. ACIT
Vijay Proteins Ltd. CIT
Krishi Tyre Retreading and Rubber Industries

The instant appeal was filed by the assessee against order of the CIT(A) vide which the CIT(A) has imposed penalty under section 271(1)(c) of the Income Tax Act, 1961 (the Act) on the addition made by enhancing the income at his end on account of bogus purchases.

The Assessing Officer (AO) had made a disallowance u/s 40A(3) towards cash payments exceeding Rs. 20,000/-.

Dissatisfied with additions, the assessee carried the matter in appeal before the CIT(A). The CIT(A) issued a notice for enhancement of income. The CIT(A) treated purchases from three concerns as bogus.

The CIT(A) made addition of the alleged outstanding liability as well as payment made by the assessee to these concerns. In other words, the purchases made from these concerns were treated as bogus and corresponding purchases cost was disallowed to the assessee.

The AO had not imposed any penalty upon the assessee, though he made disallowance under section 40A(3) of the Act. However, CIT(A) not only made enhancement to the income of the assessee by treating the total purchases made from three parties as non-genuine, he initiated penalty proceedings and imposed penalty under section 271(1)(c) of the Act.

The Tribunal on due consideration of the facts and circumstances, opined that the assessee failed to substantiate its purchases with plausible evidence, though it had submitted details, but these were purchase ledgers maintained by the assessee. They demonstrated quantitative details of purchases, details of parties, but confirmation from those parties had not been filed. Hence, purchases from these three parties were to be treated as non-genuine. Element of extra profit earned by the assessee in this exercise deserved to be added in the total income.

Therefore, the Tribunal directed the AO to calculate net profit at 5% (five percent) on the alleged bogus purchases.

On the issue of penalty, the Tribunal observed that on similar facts the Hon’ble High Court had reversed the order of the Tribunal and deleted the penalty which was imposed on similar reasoning. The Hon’ble High Court was of the view that conclusively it was not brought on record whether the purchases are to be treated as bogus or not, the income had been estimated on the basis of circumstances brought on record.

The Tribunal observed that in the present case also, it had been concluded, on the basis of circumstantial evidence that the purchases made by the assessee to some extent were non-genuine, and therefore profit element involved in such purchases deserved to be assessed as income of the assessee.

Following the judgment of Hon’ble jurisdictional High Court the Tribunal allowed the appeal of the assessee and delete the penalty.

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