Kalpaka Bazar vs Commissioner of Income Tax

C.N. Ramachandran Nair, J.—In the reference at the instance of the assessee,s the Tribunal has referred the following question as arising from their order disposing of the penalty appeal for 1984-85:

Whether the Tribunal was right in confirming the penalty u/s 271(l)(c) in respect of the inflation of purchase to the tune of Rs. 1,11,193 where it could be found that the ground raised by the department that the inflation in purchase to the tune of Rs. 1,11,193 was actually detected only when the assessment was subjected to audit u/s 142(2A) as not a valid and correct ground ?

For the assessment year 1984-85 assessee filed return disclosing income of Rs. 1,54,713. However, the Income Tax Officer completed assessment on a total income of Rs. 14,41,640 which included addition towards purchase inflation for Rs. 1,11,193 and gross profit addition of Rs. 11,21,066. In fact, search was carried out in the premises of the assessee and books of account and other documents were seized. Statutory audit was done u/s 142(2A) of the Income Tax Act. The auditor brought out bogus purchases accounted by the assessee to the extent of Rs. 1,11,193 which represents proforma invoices not representing any actual purchases. Penalty is levied based on inflation of purchase value and on account of GP addition. However, in successive appeals, penalty attributable to GP addition was deleted which is final. However, Tribunal sustained penalty pertaining to inflation of purchases amounting to Rs. 1,11,193.

Admittedly, the disputed amount represents proforma invoices which do not represent actual purchases and so much so, the disputed expenditure is bogus purchase accounted by the assessee. Accounting of bogus purchase expenditure is nothing but concealment and therefore, penalty was rightly levied which got confirmed in appeal. In view of the clear-cut finding of fact against the assessee, we answer the question referred against the assessee and in favour of the department. Reference case is disposed of as above.