Admission of Bogus purchases to Inflate work in progress during Search necessarily invites Imposition of Penalty: ITAT [Read Order]

While hearing the case of Centaur Mercantile P. Ltd, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) recently held that the admission of bogus purchases to inflate work in progress during search necessarily invites imposition of penalty under section 271(1)(c) of the Income Tax Act.

During the course of the search, it was found that the assessee was debiting bogus purchases to the books of account and the same fact was also accepted by the Managing Director of the assessee company. He further surrendered a total amount of ` 39.42 crores in the group as a whole, on account of bogus purchases out of which an amount of 17.05 was admitted in the hands of the assessee company.

During the assessment period, the Assessing Officer (AO) observed that assessee had furnished inaccurate particulars in its return of income filed under section 139(1) of the Income Tax Act 1961 since it had debited bogus purchases in its books of account and, thereby inflated its work-in-progress and the assessee was admitted the same. Consequently, penalty proceedings under section 271(1)(c) of the act were initiated.

It was contended by the assessee before the AO that since there is no difference in the income declared and the income assessed, there is no tax sought to be evaded. However, the AO was not convinced with assessee’s submission and confirmed the penalty.

On appeal, the CIT(A) also upheld the order passed by the AO and confirmed the penalty imposed by him. Thereafter, the assessee approached the Tribunal on further appeal.

After considering the facts and circumstances, the bench comprising of Judicial Member Pawan Singh and Accountant Member Shamim Yahiya also upheld the order passed by the lower authorities by observing that “the assessee was owner of undisclosed income during the year and it is a clear fact that the assessee has been found to be in possession of undisclosed income during the year and on which penalty under section 271(1)(c) is eligible”.

The division bench further analyzed that “In the present case, the amount of income which the assessee is seeking to evade is clearly and unambiguously represented by the bogus purchase booked in the concerned year. Hence, there is no ambiguity in the amount of income which the assessee sought to evade by the furnishing of inaccurate particulars of income by way of booking bogus purchases”.