Pr. CIT vs. Fortune Technocomps (P) Ltd (Delhi High Court)

DATE: May 13, 2016 (Date of pronouncement)
DATE: May 19, 2016 (Date of publication)
AY: 2007-08
FILE: Click here to download the file in pdf format
S. 271(1)(c) penalty on Bogus Purchases: If the assessment order in the quantum proceedings is altered by an appellate authority in a significant way, the very basis of initiation of the penalty proceedings is rendered non-existent and the AO cannot continue the penalty proceedings on the basis of the same notice

In the quantum proceedings originally the AO had proposed an addition to the extent of Rs.3,62,49,274/- as bogus transactions of purchases shown by the assessee from nine parties, as the alleged sellers were not traceable. In the appeal by the Assessee the CIT (A) held that the entire purchases could not be treated as bogus since the assessee had established the identity of the suppliers who had made substantial supplies. The CIT (A) held that the purchases made by the assessee were genuine and deleted the addition made by AO and instead made an addition of Rs. 68,31,196 in the manner and for the reasons noted hereinabove. This order of the CIT (A) stood affirmed by the ITAT when it dismissed the Revenue’s quantum appeal. Despite the basis for issuance of the penalty notice under Section 271 (1) (c) having disappeared with the deletion by the CIT (A) of the addition made by the AO, the latter continued with the penalty proceedings and imposed the penalty as noted above. This was set aside by the CIT (A). The Revenue then went in appeal before the ITAT which by the impugned order affirmed the order of the CIT (A). Relying on the decision of the Calcutta High Court in CIT v. Ananda Bazar Patrika Pvt. Ltd. (1979) 116 ITR 416 (Cal), the ITAT held that “once the basis for initiation of penalty proceedings was altered or modified by the first appellate authority, the Assessing Officer has no jurisdiction thereafter to proceed on the basis of the findings of the first appellate authority.” On further appeal by the department HELD by the High Court dismissing the appeal:

Once the assessment order of the AO in the quantum proceedings was altered by the CIT (A) in a significant way, the very basis of initiation of the penalty proceedings was rendered non-existent. The AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also, the Court concurs with the CIT (A) and the ITAT that once the finding of the AO on bogus purchases was set aside, it could not be said that there was any concealment of facts or furnishing of inaccurate particulars by the Assessee that warranted the imposition of penalty under Section 271 (1) (c) of the Act.

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