Income Tax Appellate Tribunal - Ahmedabad
Deputy Commissioner Of Income-Tax vs Continental Engineering Industries ... on 26 April, 1994
Equivalent citations: [1994]51ITD71(AHD)
ORDER
B.L. Chhibber, Accountant Member
1. This appeal by the Revenue is directed against the order dated 29-1-1992 passed by the learned CIT(A) deleting the penalty amounting to Rs. 1,57,588 levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. The assessee is engaged in the business of manufacturing textile weaving accessories like Frames, Steel Reeds, all Metal Reeds, Droppins, etc. and is also trading in various goods like all metal dealls frame and accessories, wire flat healis, etc. During the course of assessment proceedings the ITO came to the conclusion that the assessee inflated its purchases by recording bogus purchases made from the following six parties :
(1). Hemant Textile Suppliers Rs. 15,501.00
(2). Decent Textile Stores Rs. 8,939.25
(3). Oriental Mills Stores Rs. 6,213.75
(4). Vardhman Mill Gin Stores Rs. 8,352.00
(5). Pradip Traders Rs. 21,753.00
(6). Atlas Agencies Rs. 12,109.00
Rs. 72,868.00
The assessee-company fabricated such evidence in the form of bogus purchase bills, delivery memos and receipt of payments shown to have been made to them. The ITO observed that purchase invoices, delivery memos etc. produced in support of purchases made from the aforesaid six parties were bogus and fabricated documents. Addresses given on these invoices were vague and incorrect. All those bills appeared to have been got printed at the same printing press, they were of the same size, same colour and the block 'Rs.' printed on bill of these 6 different suppliers was exactly similar which indicate that all these bills were got printed by the assessee and were fabricated by the assessee in the names of these six different parties. The assessee could not produce any confirmation from these parties. The registered letters sent by the ITO at the given addresses were returned back by the postal authorities. The Inspector of Shops and Establishments, Municipal Corporation also confirmed that no such dealers ever existed at the given addresses as per records of their office. The ITO further pointed out various discrepancies in the bills, delivery memos and the receipts. For example, in some bills the bill numbers were not mentioned by the said suppliers but the assessee, while crediting the amount of bill in the account of those suppliers had given the Bill No. in its books of account. Entries of purchases made through various bills of these six suppliers were not entered in chronological order. Sometimes the earlier bills were entered subsequent to prior dates in the stock ledger/purchase register etc. It was further stated that one bill of Pradip Traders and two bills of Hemant Textile Suppliers were not at all produced by the assessee. The learned ITO further pointed out various discrepancies in the stock registers maintained by the assessee which was produced during the course of hearing and was impounded under Section 131 on 19-2-1985. In the said stock register no day to day records of consumption, were maintained. Consumption was not verifiable with any independent evidence. The entries recorded in the stock register were sometimes not in chronological order and were also not entered datewise. Most of the items shown as purchased from these six parties did not bear normal serial numbers in sequence but, those were marked with additional number as 'A. These six suppliers were not registered with the Sales-tax authorities. Payments were shown as made to them in cash in instalments of an amount below Rs. 2,500 each at one time. It was further mentioned in the assessment order that the assessee did not produce the inward stock register before the ITO. He further pointed out various discrepancies in the stock register and other documents produced by the assessee and concluded that the assessee's contention that goods purchased from these six parties were either consumed or resold or were lying in closing stock is not correct. The learned ITO after making detailed scrutiny of the relevant records made an addition of Rs. 72,868 by holding the purchases made from the aforesaid six parties as bogus purchases.
2.1 In addition to the aforesaid addition, the learned ITO also noticed that the assessee had made following cash purchases of raw materials which were not supported by any purchase vouchers :
Date Amount Cash Items
Book purchased
F.No.
16-2-1981 Rs. 10,050.00 153/4 Aluminium Profile
18-2-1981 Rs. 8,407.50 153/5 Mix. lead
26-2-1981 Rs. 10,060.00 153/6 Reed Wire
Rs. 28,517.50
The learned ITO made disallowance of Rs. 28,517 under Section 40A(3) of the Act. An other addition of Rs. 38,242 was made by the ITO on account of Incentive Bonus. On appeal, the CIT (A) confirmed the above additions. The ITO initiated penalty proceedings under Section 271(1)(c) for concealment in respect of above three additions and after giving an opportunity of being heard to the assessee, the ITO levied a penalty of Rs. 1,57,588.
3. The assessee had challenged the order of the CIT(A) confirming the aforesaid three additions before the Tribunal and the Tribunal vide order dated 9/2/1990 in I.T.A. No. 1266/Ahd/86 have decided the issues. Out of the addition of Rs. 72,868 an addition of Rs. 45,000 has been confirmed. The addition of Rs. 28,517 made under Section 40A(3) has been deleted. Regarding the disallowance of Rs. 38,242 being the Incentive Bonus, the Tribunal has restored the matter to the CIT(A) to verify the register for payment of Incentive Bonus vide para-11 at page 39 of the Tribunal's order.
3.1 On appeal, against the ITO's order under Section 27 l(1)(c), the learned CIT(A) deleted the penalty mainly relying upon the order of the Tribunal in the quantum matter.
3.2 As regards the confirmation of Rs. 45,000 out of the total addition of Rs. 72,868 made on account of bogus purchases, the learned CIT(A) held that no penalty was leviable as the Tribunal 'had changed the addition to a G.P. addition which covers all the defects in the books'. In support of this contention he relied upon the following para at page 34 of the Tribunal's order :
Considering the totality of the circumstances, we consider it just and proper to sustain an addition of Rs. 45,000 out of the total addition of Rs. 72,868 made by the ITO in relation to ground No. 1 while sustaining the aforesaid addition, we have taken into consideration, the amount of goods resold and lying in stock. We have also considered the fact that the addition made by the ITO which is the subject-matter of ground No. 2 has not been pressed by the learned counsel for the assessee. Ground No. 2 involving an addition of Rs. 28,517 is confirmed as not pressed. Thus, the total addition sustained in relation to ground Nos. 1 & 2 would be Rs. 45,000 + Rs. 28,517 - Rs. 73,517. Such addition ultimately comes to Rs. 1.41 of the total turnover resulting in raising the declared G.P. rate of 119.47 to 20.87% which is the minimum possible addition which can be made in the declared G.P. rate, under such facts and circumstances of the assessee's case.
The CIT(A) further held that the addition of Rs. 28,517 made under Section 40A(3) had been deleted, no penalty was leviable in respect of this amount. Regarding the addition of Rs. 38,242, on account of Incentive Bonus, the learned CIT(A) observed as under :
Regarding the incentive bonus, the matter will be decided by the CIT(A) afresh and if after his decision, the penalty proceedings are considered necessary, the ITO can initiate fresh penalty proceedings on this specific ground.
The CIT(A) further noted that after the appeal effect of the order of ITAT it has resulted in a loss of Rs. 46,912 and hence no penalty was leviable on technical ground. In support of his contention he relied upon the order of the Tribunal in 38 TTJ 12.
4. Shri M.S. Rai, the learned D.R. submitted that the CIT(A) is not justified in deleting the impugned penalty. He submitted that it is evident from the order of the Tribunal that the assessee had made bogus purchases to the tune of Rs. 72,868 and after considering various defects the Tribunal confirmed the addition of Rs. 45,000. The amount of Rs. 45,000 represented bogus purchases and accordingly penalty was leviable on this amount and to the extent of Rs. 45,000 the CIT(A) should have upheld the levy of penalty under Section 271(1)(c). The learned DR further submitted that the CIT(A) has wrongly observed that the addition of Rs. 45,000 represented estimated addition because the addition was made for bogus purchases and the Tribunal taking into consideration the totality of the circumstances confirmed the addition of Rs. 45,000.
The learned DR further submitted that the CIT(A) is not justified in deleting the penalty on technical ground i.e., after the Tribunal's order the company has suffered a loss, as even in loss cases penalty under Section 271(1)(c) is leviable in view of the decisions of Tribunal in the cases of Basti Sugar Mills Co. Ltd. v. ITO [1987] 22 ITD 246 (Delhi) and Bhim Raj Anand Kumar v. ITO [1990] 33 ITD 508 (All.). In respect of levy of penalty on account of other two additions viz. under Section 40A(3) and Incentive Bonus, the learned DR relied upon the order of the ITO.
5. Shri A. Shah, the learned counsel for the assessee strongly supported the order of the CIT(A). He submitted that no penalty is leviable even in respect of the addition of Rs. 45,000 confirmed by the Tribunal because the Tribunal has confirmed the addition only to the extent of Rs. 45,000 and that too on account of low G.P. In support of this contention he relied upon the observations of the Tribunal at page 34 of the order reproduced above. He further submitted that the assessee had proved before the Tribunal that the materials in respect of alleged bogus purchases were in fact received and the same materials were either consumed or were lying in the stock; the purchases were genuine but the bills supplied by the parties were not genuine. The learned counsel further submitted that the penalty under Section 271(1)(c) cannot be levied on account of addition to the Trading Account by rejecting the books of account. The learned counsel further submitted that no penalty is leviable in respect of addition of Rs. 28,517 as the addition made under Section 40A(3) has been deleted by the Tribunal. Regarding the disallowance of Rs. 38,242, being the Incentive Bonus, the learned counsel submitted that the Tribunal has restored the matter to the CIT(A) to verify the register for payment of incentive bonus and the same will be produced before the CIT(A) in due course of time. The learned counsel further submitted that since after the appeal effect of the Tribunal's order it has resulted in a loss of Rs. 46,912 no penalty can be levied. In support of this contention he relied upon the decision of Tribunal reported in 38 TTJ 12.
6. We have considered the rival submissions and perused the facts on record. So far as levy of penalty on the additions of Rs. 28,517 under Section 40A(3) and Rs. 38,242 on account of Incentive Bonus are concerned, we agree with the learned CIT(A) that no penalty is leviable in view of the findings of the Tribunal in the quantum matter but we do not agree with the findings of the CIT(A) that no penalty under Section 271(1)(c) is leviable in respect of the amount of Rs. 45,000 confirmed by the ITAT.
The learned CIT(A), in our opinion, has mis-interpreted the findings of the Tribunal at page 34 of the order reproduced supra. No doubt, the Tribunal has converted the addition made on account of bogus purchases into a G.P. addition but that does not absolve the assessee of the charge of the concealment. The words used by the Tribunal are "considering the totality of the circumstances" which means that the bogus nature of the purchases has not been overlooked by the Tribunal as is evident from the following observations of the Tribunal, in para-7.5 at page 32 of its order :
In view of various discrepancies and mistakes pointed out by the ITO in the assessment order and in view of the fact that purchase invoices in respect of purchases made from the aforesaid six parties are admittedly bogus and those parties are neither traceable nor identifiable, the ITO had rightly rejected the book results and in a case like this provisions of Section 145(2) of Income-tax Act, 1961 are clearly applicable. The learned Advocate General also did not rightly contest the applicability of Section 145(2).
From the above observations of the Tribunal it is noted that the genesis of the addition of Rs. 45,000 is rooted in the bogus purchases made by the assessee. It is not an addition simpliciter to the Trading A/c. but the addition has been made by the ITO and confirmed by the CIT(A) and partly confirmed by the Tribunal on specific grounds. Under the circumstances we hold that the penalty is leviable in respect of the amount of Rs. 45,000.
7. On the question whether penalty under Section 271(1)(c) could be levied in view of Explanation 4 in cases where finally assessed amount is a loss, there is difference of judicial opinion. There are some decisions which have taken the view in favour of assessee and there are other decisions which have taken the view against the assessee. In the cases of CIT v. India Sea Foods [1976] 105 ITR 708 (Ker.) and CIT v. Rowther Bros. the view in favour of Department has been taken. In the cases of CIT v. Jaora Oil Mills [1981] 129 ITR 423 (MP), CIT v. C.R. Niranjan [1991] 187 ITR 280 (Mad.), CIT v. Prithipal Singh & Co. 183 ITR 69 (P&H) and Indo-Gulf Fertilizers & Chemicals Corporation Ltd. v. Unionqf India [1992] 195 ITR 485 (All.) the view in favour of assessee has been taken.
8. Both the parties have cited the decisions of the Tribunal also in some of which the view in favour of assessee is taken while in others the view against the assessee is taken. It is not necessary to refer to those Tribunal decisions.
9. As far as Benches of the Tribunal at Ahmedabad are concerned, consistent view in the recent period is in favour of assessee. One of the recent decisions of Ahmedabad Bench of the Tribunal has been cited on behalf of the assessee and that decision is in the case of H.T. Power Structure (P.) Ltd. in I.T.A. No. 4778/Ahd/1991, dated 10-2-1993. In that decision the conflicting decisions have been noted and Explanation 4 to Section 271(1) (c) on which the Department has placed strong reliance, has been considered in detail and it has been held that nothing in the said Explanation would justify levy of penalty under Section 271(1)(c) when the finally assessed amount is a loss. The Tribunal has observed as follows in said decision :
This phraseology of Explanation 4 also envisages 'total income assessed'. In Income-tax Act, 1961 total income is defined in Clause (45) of Section 2 and does not throw any light as to whether it would always include loss. Of course, there are judicial pronouncements to the effect that for some purpose words 'total income' would include loss. Then word 'assessed' also has been construed in different ways according to the context. However, it is important to note that in common parlance for a loss case one generally describe as loss computed rather than loss assessed. It means that the words 'total income assessed' do not necessarily include a case of loss computed or assessment resulting in loss. Now, the point is that in this particular context that we are considering we must hold that these words 'total income assessed' would not take into their ambit a case which has resulted in computation of loss - even as per the assessment order. The reasoning is that we are considering the statutory provisions for levy of penalty and it has been held repeatedly that penalty provisions should be construed rather strictly. Further, even in the penalty provisions Explanation 4 is a sort of deeming provision and such a provision has to be construed even more strictly. Even further, Explanation 4 seeks to prescribe what is the 'amount of tax sought to be evaded' which means that it seeks to put an artificial meaning on these words viz., 'the amount of tax sought to be evaded'. In common parlance amount of tax means amounts of tax and it cannot take into its ambit a case where no tax is leviable at all. This constitutes yet another reason for a very strict construction being placed on this provision of Explanation 4. Viewed in this light, it would be very difficult to accept the Department's contention that in Clause (5) of Explanation 4 below Section 271(1)(c) the total income assessed should take into its ambit a case where assessment has resulted in a loss. Here, we are not concerned with a case in which part of the concealed income gets adjusted against other items of loss or deficiency and the assessment results in computation of a positive figure of total income albeit much smaller than the concealed income as was the case before the Hon'ble Kerala High Court in India Sea Foods' case (supra).
In this view of the matter, we are of the considered opinion that when assessment has resulted in a loss penalty under Section 271(1)(c) would not be leviable even on the basis of Explanation 4 below Section 271(1) as inserted w.e.f. 1-4-1976.
10. We may mention here that the Hon'ble Supreme Court has specifically mentioned in CIT v. Vegetable Products Ltd. (1973] 88 ITR 192 (SC) that if the Court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty. We respectfully follow those decisions which have taken the view in favour of the assessee on this point and hold that no penalty under Section 271(1)(c) is leviable in the case of the assessee because after giving effect to the order of the Tribunal there is a loss of Rs. 46,912. We accordingly uphold the view of the CIT(A) on this technical point.
11. In the result the appeal is allowed in part pro tanto.