TMI Blog2001 (3) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase and sale vouchers, and expenses vouchers were not seized as perhaps they were not found during the course of search operations. After the search the Assessing Officer (AO), took up the assessee's case for finalisation and during the course of scrutiny and enquiry of purchase register as well as cash book, the AO noticed that the assessee made purchases of raw materials on different dates from the below given dealers on credit basis: Rs. (1) Pradip Traders, Kadia Eul, Relief Road, Ahmedabad-1 (Bill Nos. 79 206) 5,362.50 (2) Vardhman Mill Gin Stores, Raipur Chakla, Ahmedabad-1 (Bill Nos. 131 and 139) 7,447.75 (3) Atlas Agencies, Dariapur Tower Road, Ahmedabad-1 (Bill Nos. 25 48) 5,925.50 (4) Hemant Textile Suppliers, Gajarawala Bldg., Paldi, Ahmedabad-9. (Bill Nos. 43, 62, 135 183) 14,955.00 (5) Oriental Mill Stores, Kapasia Bazar, Ahmedabad-2. (Bill Nos. 68, 86 207) 5,835.00 --------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unded by him. The assessee further stated in the said letter that it received raw materials purchased from the above mentioned six parties and the same were entered in the stock register and were also consumed and therefore, the AO was not justified in drawing a presumption or conclusion that the purchases were bogus or not genuine. After the receipt of the said letter from the assessee the AO issued letter dt. 7th Aug., 1995 to all the above-mentioned six dealers at the addresses mentioned on the purchase bills through registered post A.D. asking them to file copy of account of the assessee firm from their account books and also to furnish certain further information in terms of the provisions of s. 133(6) of the Act but all the registered letters sent by the AO to the said six parties were returned by the postal authority with the endorsement/remark that those parties were not available at the addresses mentioned therein. Subsequently, the AO made enquiries with the Chief Inspector, Shops and Establishments, Municipal Corporation of Ahmedabad to ascertain from his records if those six parties were in existence during the period from 1st April, 1980, to 31st March, 1982, and to ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same amount has been debited. (5) Cash memo No. 191, dt. 10th Feb., 1981, of Vardhman Mill Gin Stores for Rs. 1,550 has not been debited on 10th Feb., 1981 but is found to have been debited in the cash book on 16th Feb., 1981. (6) Cash memo No. 45, dt. 21st Feb., 1981, of Atlas Agencies for Rs. 2,250 has not been debited at all in the cash books. (7) At p 49 of the cash book, an amount of Rs. 2,250 towards Bill No. 35, dt. 4th Feb., 1981 of Atlas Agencies has been debited, but no such bill/cash memo has been produced." The AO elicited clarification from the assessee in respect of the above-mentioned discrepancies. 6. On scrutiny of the stock register by the AO, he found that the entries therein were not made on day-to-day basis but were made periodically every fortnight. He therefore, was unable to verify the day-to-day consumption of the raw materials purchased by the assessee. On a random test-check of the said register/ledger the AO found that steel wire brush and sulphuric acid purchased under cash memo No. 246, dt. 10th June, 1981 from Pradip Traders was not entered into the ledger on pp 31 and 21 respectively. The AO further noticed that the p 4 of the stock led ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the entries for the purchases dt. 28th Nov., 1980 and 29th Nov., 1980 at p 14. (4) At pp 16 and 17 entries regarding purchases for December, 1980 have been entered. Entries regarding purchases are not made datewise. The AO, therefore, observed and informed the assessee that the purchase register was also not maintained properly in regular course and was not a contemporaneous document/evidence and the entries therein were not made on day-to-day basis as such the said purchase register was also unreliable. 9. The AO informed the assessee about the result of his enquiry and verification and proposed to add a sum of Rs. 77,943.75 to the returned income for the reason that the purchases were bogus and non-genuine and the assessee, therefore, inflated the purchases account and thereby reduced its taxable profits. The AO invited objections from the assessee and gave seven day's time. 10. The assessee replied to the show cause notice through letter, dt. 5th Feb., 1986 resisting the proposed addition of Rs. 77,943.75, contending inter alia, that it had made purchases from those six parties and the materials were also received and consumed also. It was the case of the assessee bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order. The AO also initiated penalty proceedings under s. 271(1)(c) in respect of the said addition of Rs. 5,940. 13. Not being satisfied with these two additions of Rs. 77,944.75 and Rs. 5,940 first appeal was preferred before the CIT(A) who confirmed the above-mentioned two additions made by the AO. Thereafter, the assessee preferred second appeal before this Tribunal being ITA No. 1194/Ahd/1987. This Tribunal while relying on the detailed reasons given in order dt. 9th Feb., 1990, in the appeal of M/s Continental Engineering Industries (P) Ltd., Ahmedabad (sister concern of the assessee) being ITA No. 126/Ahd/1986 and C.O. No. 160/Ahd/1986 for the asst. yr. 1982-83 as per order dt. 7th May, 1993 directed the AO to restrict the addition to the extent of Rs. 40,000 only. While giving this direction this Tribunal was of the opinion that the separate addition of Rs. 5,940 towards unaccounted sale of 27,000 droppin was not necessary. This relief to the assessee was given by this Tribunal in quantum appeal in view of the confession made by the assessee's authorised representative that the above-mentioned six parties were bogus, that is to say, not genuine and that they were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd out about the existence of one of the dealers viz. M/s. Hemant Textile Suppliers. The AO got nothing but disappointment, as the secretary of the said society informed that no such dealer ever occupied any portion in the society's building or carried on any business activity from there. The purchase invoices also did not contain state or central sales-tax registration number. All private enquiries made by the AO through his best efforts revealed only one thing that none out of the six traders ever existed at the addresses contained in the purchase bills nor could he get any clue, hint or iota of evidence that those dealers ever carried on any business activity from those addresses much less business in the material purchased by the assessee-firm. Thus, the obvious conclusion which could be drawn by any prudent and reasonable man will be that no such dealers or traders ever existed or rather they were ghosts or paper creations. The assessee-firm, when confronted by the AO on several occasions in respect of the results found by his private enquiries, did nothing positive except repeatedly asserting that the parties were genuine and since the material was received as per the entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore this Tribunal for the year under appeal there has been clear confession and admission by the assessee's authorised representative that the purchases were bogus, that is to say, non-genuine and the parties were neither traceable nor identifiable. The assessee wants to exonerate itself from the clutches and rigour of the penal provisions of s. 271(1)(c) of the Act on the ground that the materials were received and consumed. This is the only defence the assessee has but very weak as per law. Well as stated by us above, the assessee in order to give a colour of genuineness to the alleged bogus purchases made false and dubious entries in its accounts and other connected subsidiary register and we reiterate that by such entries the assessee cannot establish about the genuineness of the purchases. 20. One more thing gets established by the admission of the assessee on account of bogus purchases and the sellers not being traceable and identifiable that it gave false credits to the accounts of five different parties; from whom alleged credit purchases were made and also fabricated, engineered and brought into existence false and bogus delivery challans, goods receipt memos, cash paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration or discussion is required in view of plethora of decisions of the apex Court and various High Courts that it is the deliberateness, contumacious and dishonest conduct, guilty-mind mens rea on the part of an assessee in filing false return that attract the penal provisions of any statute. It is cardinal principle of criminal as well as quasi-criminal proceedings that bona fide, genuine, accidental and honest mistakes can save any person from the clutches, teeth and rigours of penal provisions of any enactment. The two notable landmark judgments of the apex Court, one in the case of Hindustan Steel Ltd. vs. State of Orissa and the other in the case of Cement Marketing Co. of India Ltd. vs. Asstt. CST (1980) 124 ITR 15 (SC). clearly lay down what we have stated above. 24. The refusal of the assessee's authorised representative during the course of hearing of this appeal to go back to the AO and re-establish the genuineness of the alleged purchases by producing the concerned proprietors/partners of those firms leaves no doubt regarding the charge of concealment made out by the AO against the assessee-firm. In fact, the assessee's authorised representative has been quite fair e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impetus and encouragement to clever and unscrupulous assessees to conceal income and evade with impunity payment of legitimate taxes. We, therefore, cannot do so. 27. We would like to record here that but for the search operations on the assessee-firm and its allied concerns and but for the diligent efforts of the AO in conducting a deep and thorough investigation and enquiry unraveling the whole mystery of bogus purchases the assessee would have succeeded in its carefully well-designed and well-planned scheme of reducing its true taxable profits and ultimately evading payment of legitimate taxes due on such income. 28. The impeccable facts, the assessee's contumacious conduct, the fabricated and false evidence relied and used by the assessee in assessment proceedings were crying and shouting loud that the assessee is guilty of concealment and should be penalised under s. 271(1)(c) of the Act and the AO heard the cries and shouts and rightly acted and justifiably levied the penalty under s. 271(1)(c). 29. In our view, the assessee has thus failed to prove its innocence. We, therefore, without slightest hesitation uphold the charge leveled against the assessee-firm for concea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as per bills, dt. 16th March, 1981 and 24th March, 1981. The sale proceeds of 27,000 droppins at the above rate will be Rs. 5,940 which are not accounted for and hence added to the total income of the assessee. Penalty proceedings under s. 271(1)(c) for concealment of income are initiated separately." The assessment order was passed on 14th March, 1986. The CIT(A) decided the quantum appeal vide order dt. 13th Feb., 1987, confirming the assessment order made by the ITO. The ITO levied penalty under s. 273(1)(b) as well as penalty under s. 271(1)(c) vide the separate orders dt. 29th March, 1988. The CIT(A) confirmed the penalty levied under s. 273(1)(b) vide order, dt. 10th Feb., 1989. He also confirmed the penalty levied under s. 271(1)(c) vide his order, dt. 17th March, 1989. The quantum appeal filed by the assessee against the order of the CIT(A) was decided by the Tribunal vide order, dt. 9th May, 1993, in ITA No. 1194/Ahd/1987. The order passed by the CIT(A) confirming the aforesaid penalties were thus passed prior to the decision of the Tribunal in the quantum appeal for the year under consideration. 3. The appeals submitted by the assessee against both the penalty ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further neatly established by cogent enquiry that the purchases from the alleged six dealers were bogus and sham or rather to put in a straight forward and simple manner that no purchases were ever made by the assessee-firm but the same were camouflaged by incorporating false and dubious entries in the subsidiary registers. Such evidence cannot inspire any confidence in the mind of any prudent or reasonable man and, therefore, no evidence or weightage can be given in the course of any judicial or quasi-judicial proceedings of the present nature.... .... ..... ...... We are in agreement with the AO that the entries in its accounts and registers are impeachable and cannot satisfactorily go to prove receipt of material from the alleged six parties." Para 14, para 22 "We cannot let off the assessee from the teeth of s. 271(1)(c) of the Act for the simple reason that this Tribunal, in assessee's quantum appeal, has reduced the addition to Rs. 40,000 taking all of s. 145(2) of the Act. The lenient and liberal view taken by this Tribunal in assessee's quantum appeal by giving partial relief cannot be construed that the default, charge or guilt of the assessee-firm has been condoned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Continental Engineering Industries (P) Ltd. (ITA No. 1266/Ahd/1986) for this very year, namely, asst. yr. 1982-83. The Tribunal in para 6 of the order in the quantum appeal observed that they concurred with the elaborate reasons and conclusions derived in the case of Continental Engineering Industries (P) Ltd. 5. The reference application submitted by the CIT, Gujarat-I, Ahmedabad against the order passed by the Tribunal in the quantum appeal has been rejected by the Tribunal vide order, dt. 13th Sept., 1993 in R.A. No. 408/Ahd/1993 (in which also both of us were parties). It will also be relevant to reproduce the extract from the said order. In para 2 of the said order, the Tribunal observed as under: "2. .... .... .... The Tribunal, after considering the entire evidence and material existing on records came to the conclusion that the six parties from whom purchases were shown to have been made are not genuine parties. They are neither traceable nor identifiable and the purchase invoices in their names debited in the books of account of the assessee are not genuine. The Tribunal, therefore, upheld the action of the Revenue authorities in holding that the book results cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantum appeal. 7. The AO recorded the satisfaction under s. 271(1)(c) and levied the penalty under the aforesaid provisions on the ground that the purchase of Rs. 77,943 represented bogus purchases as the six suppliers in question are not genuine parties and as no such purchase was in fact made by the assessee. Apart from this, he also took into consideration the addition of Rs. 5,940 made on account of sale of droppins. The CIT(A) confirmed the order passed by the AO on the same footings. The orders passed by the AO and the CIT(A) confirming the said penalty under s. 271(1)(c) were passed at an anterior point of time i.e., much prior to the decision of the Tribunal in the quantum appeal. The Tribunal in the quantum appeal has given a categorical and definite finding that in view of the entire relevant material, facts and circumstances, the reality of the receipt of the material in question cannot be doubted and that fact that material has in fact been received has been accepted. It is true that the Tribunal did confirm the finding given by the lower authorities that the six parties whose sale invoices were produced by the assessee to support the purchases in question were not ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have before them the order of the Tribunal in the quantum appeal at the time when they decided the penalty matter in question. The nature, content and the quantum of the addition in question has assumed a different complexion and, therefore, I am strongly of the view that the matter relating to leviability or non-leviability of the penalty in question requires fresh consideration in the light of the findings of fact given by the Tribunal in the quantum appeal. I, therefore, consider it just, proper and appropriate to set aside the orders of the lower authorities and restore the matter back to the AO for deciding the matter afresh in accordance with the provisions of law after providing reasonable opportunity to the assessee. 10. In the result, the appeal is treated as allowed for statistical purposes. REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 7th Oct., 1994 A difference of opinion having arisen between us, the two members who heard the appeal originally, we state the point of difference as under: "Whether, on the facts and in the circumstances of the case, the penalty levied under s. 271(1)(c) should be sustained or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a favourable consideration and observed as under: "In view of the details and facts contained in the documents submitted in the compilation. We also uphold the action of the Revenue authorities in holding that book results cannot be accepted and the provisions of s. 145(2) would be applicable in a case like this. However, we agree with the assessee's contention that the entire amount of purchase price cannot be added as deduction for a reasonable price in respect of the material really received by the assessee will have to be granted. In a case where provisions of s. 145(2) are admittedly applicable, the only proper course would, be to make a reasonable estimation ....." 2.2. For computing relief allowable to the assessee, the Tribunal took into account the G.P. rate disclosed by the assessee in different years on manufacture of articles as also plating charges received by the assessee. The learned counsel for the assessee had given working of addition of Rs. 28,734 which could at least be made in the hands of the assessee with reference to GP rate disclosed. After considering the relevant facts, the Tribunal was of the view that instead of Rs. 83,885 (Rs. 77,944 + Rs. 5,940 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther technical nor venial. On the contrary the assessee's conduct right from the very beginning as facts and records revealed has been contumacious and it has been caught, so to say, red-handed being involved in manipulating its accounts and registers by showing bogus purchases and evading payment of legitimate taxes due on its true taxable income as per the provisions of IT law. No further elaboration or discussion is required in view of plethora of decisions of the apex Court and various High Courts that it is the deliberateness, contumacious and dishonest conduct, guilty mind-mens rea-on the part of an assessee in filing false return that attract the penal provisions of any statute. It is cardinal principle of criminal as well as quasi-criminal proceedings, that bona fide, genuine, accidental and honest mistakes can save any person from the clutches, teeth and rigours of penal provisions of any enactment. The two notable landmark judgments of the apex Court, one in the case of Hindustan Steel Ltd. vs. State of Orissa and the other in the case of Cement Marketing Co. of India Ltd. vs. Asstt. CST (1980) 124 ITR 15 (SC) clearly lay down what we have stated above. 24. The refusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... got reduced, diluted, extinguished or vanished. 26. To hold, as argued by the assessee's authorised representative, that an assessee becomes immune from penal action under s. 271(1)(c) on the ground of partial relief, say, even of Rs. 100, obtained in appeal proceedings would not only amount to wiping out or rendering the said penal provisions otiose and dead but will also give an incentive, impetus and encouragement to clever and unscrupulous assessees to conceal income and evade with impunity payment of legimate taxes. We, therefore, cannot do so." 3. The learned A.M. did not agree with the above view. He, in his dissenting order extensively quoted from the proposed order of learned J.M. The learned A.M. also thought it fit to quote the following para from the order of the Tribunal in the quantum appeal: "Para 3. We have carefully considered the submissions made by the learned representatives. In view of the elaborate reasons given in the assessment order and in the order of the CIT(A) and in view of the concession made by the learned counsel, we hold that the above-named six parties are not genuine parties. They are neither traceable nor identifiable and the purchase invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in quantum appeal has given a categorical and definite finding that in view of entire material facts and circumstances relating to the receipt of the material in question cannot be doubted and the fact that material has in fact been received has been accepted. Although the Tribunal maintained the non-existence of six parties in question, as alleged seller, but from above in could not automatically follow that assessee had concealed income as contemplated in s. 271(1)(c) of the IT Act. The learned A.M. further observed that having regard to the finding in the quantum appeal that material in question has really been received, the only question which survives thereafter was whether the rate of purchase or purchase price shown in the said fictitious invoices is reasonable or inflated one. Out of addition of Rs. 40,000 sustained by the Tribunal only that part which is attributable to inflation of purchase price, if any, could be regarded as having its root or nexus with the transaction shown in name of six bogus parties in relation to which addition was made by the AO and the balance amount of addition sustained by the Tribunal in the quantum appeal would be like any other estimated/lum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court as early as in 1970 in the case of CIT vs. Anwar Ali (1968) 76 ITR 696 (SC). Their Lordships further observed "it cannot be said that the finding given in the assessment proceedings for determining or computing tax is conclusive. However, it is good evidence". Even if the assessee did not challenge or concede the addition made in assessment proceedings, he can still challenge that no case for levy of penalty is established. This can be shown with reference to the existing evidence and it is not mandatory requirement of any provision that assessee should lead fresh evidence to get out of the clutches of penalty proceedings. I have made these observations to repel any misgiving or misimpression that may arise with regard to the addition sustained in the quantum proceedings. Such an impression can arise on account of extensive quotations from the order of Tribunal in the quantum proceedings on which the learned Members have relied in the proposed orders now before me. Again, it is to be borne in mind that in penalty proceedings one cannot make out a case totally different from one made in assessment proceedings. In other words, levy of penalty cannot be justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll have to be granted. Thus, the original finding of the Revenue authorities that assessee claimed fictitious deduction in respect of purchases from six parties was not in existence. In the light of the above finding of the Tribunal, it became imperative for the AO to reconsider the question whether penalty under s. 271(1)(c) of the IT Act could at all be imposed having regard to the fact that its finding stood modified. I entirely agree with the learned A.M. that penalty would be justified only if it is found on record that Rs. 40,000 sustained by the Tribunal represented inflated price of purchase of goods utilised in production. This has to be established by the Revenue through preponderance of evidence. Merely because above addition has been sustained is not sufficient to justify the levy of penalty. The assessee can also argue that addition has been sustained purely on estimated basis and there is no material on record to show that price of goods was inflated. All these questions are required to be examined in accordance with law. Therefore, setting aside of penalty order is fully justified on facts and in the circumstances of the case. In the light of the above decision, I fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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