TMI Blog2012 (10) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payees insisted on immediate payment, to fulfill their contractual commitment to their suppliers. Considering a case for business expediency, the material which led to the penalty order i.e. absence of the payees at their places or address provided, was gathered after notice under Section 271 (1) (c) was issued. Thus assessee ought to have been provided with opportunity in this regard during the assessment and that material which did not exist at time of initiation of the penalty proceeding ought not to have been put against it. Thus addition on the basis of the assessee’s offer to be taxed at 8% on gross receipts cannot be concluded that it had provided inaccurate particulars in its returns & the imposition of penalty was not justified - in favour of the assessee - ITA 1246/2010 - - - Dated:- 11-10-2012 - MR. S. RAVINDRA BHAT AND MR. R.V. EASWAR JJ. Appellant : Sh. Sanjeev Sabharwal, Sr. Standing Counsel with Sh. Puneet Gupta, Jr. Standing Counsel. Respondent: Sh. C.S. Aggarwal, Sr. Advocate with Sh. Prakash Kumar and Ms. Pushpa Sharma, Advocates. MR. JUSTICE S.RAVINDRA BHAT 1. The question of law urged in this case is as follows: 1. Whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or s report, as borne from the AO s order showed that the premises of five of such suppliers had been visited and that the assessee s claims were unsubstantiated as the concerns or their proprietors were not found. In these circumstances, the AO held as follows: The report of the Inspector clearly indicates that the parties to whom payments were made could not be found on the address furnished by the assessee during the assessment proceedings. The assessee, during the assessment proceedings was conscious about the fact that if enquiry had been made regarding genuineness of parties and transactions the concealment of income would have been detected therefore the assessee decided to offer additional income for taxation. In fact this was not an offer but admission/confession of income concealed/filing of inaccurate particulars as it has been established beyond doubt through enquiry that the payments on a/c of purchases had been made to non-existent parties to inflate purchase which has resulted into concealment of income. In view of the detailed discussion made above and also considering the facts and circumstances of the case penalty u/s 271(1)(c) is imposed on the assessee. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plying 8% net profit rate, which was found to be reasonable in accordance with the provision contained in section 44 AD of the Act, a provision not applicable to the case of the assessee. Upon making such addition, the case of the assessee was that all the bills and vouchers had been produced and facts other than non-available of the parties at the given address were not considered before levying the penalty or even by the learned CIT (Appeals) while upholding the penalty. XXXXXX XXXXXX XXXXXX Therefore, the whole question is to be seen in the light of the provision and the Explanation thereto. The explanation was that the income has been computed by applying a flat rate of 8% to the receipts for determining the income. No evidence was cited that any inaccurate particulars were furnished because the bills etc. were not investigated into in detail. Further, no fact exists to show that the income was concealed as the income was computed by applying a flat rate. If it was the case of the AO that bogus purchase entries have been made in the books, he ought to have rejected the books and then the could estimate the income on the basis of facts on record. The books were not rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 40A(3), the penalty amount would be 20% of the said sum, i.e. Rs.8,14,636/-. It was submitted that the assessee had provided a detailed chart along with its reply to the AO, who was satisfied that taxing @ 8% net profits on the gross receipts was sound and reasonable. This was in the form of a chart which showed that the rate of profit brought to tax never touched 8% except for three years in the preceding ten years. Consequently, the AO and the CIT (A) completely overlooked the fact that apart from an erroneous assumption of the sum of money paid otherwise than by crossed cheque, the Revenue had benefited on an overall basis by the offer to bring the assessee s income to tax under Section 44AD. 10. Learned counsel argued that the material relied upon by the AO and affirmed by the CIT (A) in this case, was gathered after assessment order was made. The inspection report was clearly obtained after the assessment order was made on 07.12.2006 whereas the Inspector s report was made available to the AO after that event was made available on 24.06.2007 to the assessee. Learned counsel emphasized that the non-explanation about the bearer cheques issued could not, at the stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. The provision was considered in some detail by the Supreme Court in its judgment reported as Attar Singh Gurmukh Singh v ITO AIR 1991 SC 2109, while examining its constitutional validity. The Court also held that: Section 40A(3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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