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 :
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 :
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.
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.
(3.) 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  22 ITD 246 (Delhi) and Bhim Raj Anand Kumar v. ITO  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.;