THE issue is - Whether admission of bogus purchases to inflate work in progress during search necessarily invites imposition of penalty. YES is the answer.
Facts of the case:
The assessee company belongs to Kanakia Group of cases, where a search and seizure action was carried out, and it was found that the assessee had debited bogus purchases to the books of account. This fact was accepted by the Managing Director of the assessee company in his statement recorded on oath u/s. 132(4). He also surrendered an amount on account of bogus purchases. The assessment was thereafter completed, in which the AO had reduced the respective amount of bogus purchases for the year, out of the closing work-in-progress and, as such, no addition was made in the hands of assessee for the year. However, in the assessment order, the AO clearly mentioned that the assessee had furnished inaccurate particulars of its income, and therefore, penalty proceedings u/s 271(1)(c) was initiated. The assessee did not file any appeal against the assessment orders, wherein bogus purchases were disallowed and work-in-progress were reduced. The assessee’s books of account for the year.Tribunal held that,
++ it is undisputed that the assessee had booked bogus purchases thereby inflating work-in-progress. Hence, it is clear that the assessee was owner of undisclosed income during the year. It was because of the system of accounting followed by the assessee being percentage completion method, that there was no change in the figure of income offered in the year. However, the resultant impact of bogus purchases resulting in bogus inflation of work-in-progress was subsequently reversed and given effect in A.Y. 2011-12, in which year there was increase in corresponding income. Hence, the assessee was found to be in possession of undisclosed income during the year and on which penalty u/s. 271(1)(c) was exigible;
++ it is seen that the search in this case had been conducted after the first day of June 2007, wherein the assessee had been found and had clearly accepted to have booked bogus purchases and, thus, admitted inflation of expense resulting in assessee being actually owner of the income to that extent. Even if the assessee subsequently discloses the income in any return of income furnished afterwards has been specified to be of no consequence. Hence subsequent disclosure or nondisclosure of income in any return of income furnished subsequently has been specifically referred to be of no consequence. Thus as per a specific provision of explanation 5A assessee has been found to be owner of undisclosed income by furnishing inaccurate particulars of income, based upon entry of bogus purchases in its books of account.