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The Income-tax Officer, Ward-4(1), Ahmadabad Navjivan Turst Bldg., Off. Ashram Road, Ahmadabad. V/s. Geera Finance Ltd. Anand, Saurashtra Society, Paldi, Ahmadabad 380 007
April, 02nd 2014
            ,  Û `'

            Before Shri D.K.Tyagi, Judicial Member and
                   ^ . .×, Û  
                  Shri T.R. Meena, Accountant Member
                  ^ ..,    ¢ 

                           ITA No. 2802/Ahd/2012
                          Assessm ent Year :1989-90

The Income-tax Officer,         V/s . Geera Finance Ltd.
W ard-4(1), Ahmadabad                 "Anand", Saurashtra Society,
Navjivan Turst Bldg., Off.            Paldi, Ahm adabad ­ 380 007
Ashram Road, Ahm adabad.
                      P AN No. AAACG7562Q
          (Appellant)           ..            (Respondent)

       / By Appellant                   Shri K. C. Mathews, Sr.D.R.
   ×   /By Respondent                   Shri Vijay Ranjan, A.R.
     /Date of Hearing                    18.03.2014
     /Date of Pronouncement               27.03.2014


PER : Shri T.R.Meena, Accountant Member

      This is an appeal at the behest of Revenue which has emanated

from the order of CIT(A)-VIII, Ahmedabad, dated 22.09.2012 for

assessment year 1989-90.      The sole ground of Revenue's appeal is

against deleting penalty of Rs.4,91,124/- levied by the Assessing Officer

without appreciating facts that transaction were found bogus and parties
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                                   Page 2

had only issued bills in favour of the assessee. Even the revised return

was filed by the assessee after complete enquiries by the A.O.                         The

CIT(A) erred in not considering the decision of Hon'ble Delhi High court in

the case of CIT vs. Usha International (348 ITR 485).

2.      In this case, the A.O. completed the assessment u/s. 143(3) of the

IT Act on 30.11.1990 and addition on account of bogus trading loss was

made       at   Rs.7,81,149/-          and      finally   income   was   determuined    of

Rs.8,38,500/- against the net profit of Rs.90,145/-. For this, the ld. A.O.

initiated penalty proceeding u/s. 271(1)(c) for concealment of income and

furnishing inaccurate particulars of income. Before imposing penalty u/s.

271(1)(c), the A.O. gave reasonable opportunity of being heard, which was

availed by the assessee. After considering the assessee's reply, the A.O.

observed that during the course of assessment proceeding u/s. 143(3) of

the IT Act, the books of account from 08.09.1988 to 31.03.1989 were

produced by the assessee. The books of account prior to 01.09.1989

were seized by the Department during the search operation u/s. 132 of the

IT Act from the business premises as well as residence premises of the

assessee. On examination of these books, it was noticed by the A.O. that

the assessee had incurred heavy losses in every transaction of purchase

and correspondences the parties with whom these transactions had been

made were summoned and examined under oath by him. The ld. A.O.

found that:
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                           Page 3

                 "Shri Prashant P Vakil, proprietor of A.P. Traders, from whom
        majority of these goods had been purchased, revealed that A.P.
        Traders dealt in self adhesive stickers only and carried on no other
        business. He had himself issued sales bills of Rs.25,99,075/- to Geera
        Finance Ltd. but no goods as mentioned in the bills, were supplied. He
        had no such goods in his possession and he did not purchase any
        such goods from any other party. He stated that he had issued these
        bills at the behest of Shri Bharat C. Shah, who was the brother of
        Prakash C. Shah, M.D. of the assessee company. He also admitted
        that these bills were issued in the months of May & June, 1989, but
        were dated January & February,1989. These transactions were not
        entered in the books of accounts and even a carbon copy of the same
        was not kept. A separate bank account, for these transactions was
        opened with Ahmedabad Mercantile Co-op. Bank Ltd., Paldi branch,
        where the cheques of the assessee company were deposited. After
        clearing, the cash was withdrawn and handed over to Shri Prakash
        C.Shah, M.D. of the assessee company. Proof was also submitted
        showing that the bank account was opened on 30.5.89 and cheques of
        Gcera were deposited from June to October, 1989.

                 In the case of another such party, Hemani Chemicals Pvt. Ltd.,
        Shri Chandravadan M.Shah, Director stated under oath u/s.131 that it
        dealt in fire extinguishers and had the agency of Red Commet
        Automatic Fire extinguishers. He revealed that he had issued sales
        bills to Raj Radhe another group concern, in the month of May, 1989
        and against that, payment was made to Geera Finance Ltd.              He
        admitted that no purchase had been made from Gccra Finance Ltd.
        and no sale had been made to Raj Radhe Finance Ltd. This
        transaction was done simply to accommodate the assessee and at the
        instance of Shri Kaushik C. Shah & Shri Bharat C. Shah, brother of
        Shri Prakash C. Shah. He did not see the goods at all. Again he
        revealed that while the bills were received in the month of May, 1989,
        the dates were of January and February 1989.
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                              Page 4

                 Shri Harmit B, Patwa, proprietor of Ridhi Sidhi corporation and
        Shri Dixit B. Patwa, proprietor of Nimol Dyechem, Jitendra Chemicals
        and J.K. Chemicals were also examined under oath u/s..131 of the
        I.T.Act. On collecting additional facts and relevant bills, it emerged that
        these entities, together with the assessee's group of companies had
        indulged in a network of transaction, which ended up with Rajradhe
        Finance Ltd. and Geera Finance Ltd. creating a bogus loss on paper
        and the companies of the Patwa group showing a profit. No actual
        delivery was effected in any transaction."

The A.O. concluded that assessee was indulged in bogus purchase and

sale transaction to reduce its profit with a view to avoid payment of tax on

the same.         The ld. A.O. at the time of assessment gave reasonable

opportunity of being heard after recording the statement, he also

forwarded the copy of statement of Shri Prashant P. Vakil and offered

cross examination of the witness. The assessee was asked to prove the

genuineness of these purchases made from above parties. The assessee

filed revised return on 07.11.1990 declaring the entire bogus loss of

Rs.7,81,149/- as additional income for A.Y. 89-90. The assessee claimed

before the A.O. that offer was made to avoid litigation and to buy peace of

mind and on the condition that no penal action be initiated against it. The

tax and interest was also paid on additional income. The CIT(A) also

confirmed the finding of concealment of income/bogus transaction and

held that. As a result of investigation and the act of the revised income

was purely subsequent to the detection by the A.O. and was in admission

on the part of the assessee to the nature of the bogus transaction. The
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                                Page 5

Hon'ble ITAT also upheld the addition in ITA No. 998/Ahd/95, dated

19.02.2001 and adding that the A.O. was fully justified in making the

addition. After considering the assessee's reply, he was satisfied that the

assessee had furnished inaccurate particulars as also concealed the

particulars income from the beginning with a deliberate intention to evade

due taxes payable on its income. Thus, he imposed 100% of penalty on

concealed income at Rs.4,92,124/- of the tax sought to be evaded.

3. Being aggrieved by the order of the A.O., the assessee carried the

matter before the CIT(A) who has deleted the penalty by observing as


        "4.      I have gone through the penalty order and the submission of the
        appellant carefully. After duly considering the entire facts and
        circumstances and the legal position, I am of the view that levy of
        penalty u/s.271(1)(c) of the I.T. Act is not justified in the present case.
        First of all, it is notable that the appellant-company had made
        purchases from A.P. Traders and Hemani Chemicals P. Ltd. These
        purchases are supported by bills issued by the aforesaid parties and
        the payments were made by the appellant-company by cheques
        through regular banking channels, which are duly credited to the bank
        accounts of the aforesaid parties. It is notable that besides the
        aforementioned two             parties   the appellant-company   had made
        purchases from several other connected parties which are also
        supported by vouchers and payments were made through cheques.
        Out of these several parties the Assessing Officer recorded the
        statements of Shri Prashant P. Vakil, proprietor of A.P. Traders and
        Shri Chandravadan M. Shah, director of Hemani Chemicals P. Ltd. The
        purchases made from other connected parties were not examined by
        the Assessing Officer. The Assessing Officer also allowed opportunity
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                              Page 6

        to the appellant-company to cross-examine the above mentioned two
        persons but it did not avail this opportunity and filed a revised return of
        income. It may be mentioned that the loss arising from purchases
        made from the above two parties amounted to Rs.7,26,125 whereas
        the total loss with regard to purchases and sales relating to various
        connected parties amounted to Rs.7,81,149. During the course of the
        assessment proceedings the Assessing Officer only proposed
        disallowance of loss of Rs.7,26,125. However, the appellant-company
        surrendered the entire loss of Rs.7,81,149 in the revised return of
        income. As mentioned above, it declined to cross-examine the two
        persons for the reason that they were close friends of the directors of
        the appellant-company and probably they disowned the purchases for
        the reason that the same may not have been accounted by them in
        their books of account. The appellant-company felt that cross-
        examination may result into embarrassment of the aforesaid two
        friends of the directors. Therefore, a revised return was filed
        surrendering the total loss. It is notable that ail the purchases are
        supported by vouchers and the same are duly recorded in the audited
        books of account and all the payments have been made by the
        appellant-company through regular banking channel.

        5.       Another important fact to be noted while considering levy of
        penalty u/s.271(1)(c) is that for the immediately preceding assessment
        year 1988-89, the appellant-company had incurred loss of Rs.5,38,771
        in respect of purchases and sales around the same time as in the
        present assessment year. The Assessing Officer disallowed the loss
        treating the same as bogus loss and further penalty u/s.271(1)(c) of
        Rs.3,40,222 was levied. During that year the appellant-company did
        not file any revised return of income surrendering the aforesaid loss
        and the issue was contested by it in further appeals. It obtained part
        relief before the learned CIT(A) who held that wherever the loss arose
        from purchases from connected concerns, the same should be
        disallowed. While giving effect to this order the Assessing Officer
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                              Page 7

        allowed loss to the extent of Rs.2,14,751 and levied penalty
        u/s.271(1)(c) of Rs.3,40,222 as mentioned above. The appellant filed
        appeal against levy of penalty and the penalty was deleted by the
        learned CIT(A) vide his order dated 31.3.1994. It Is notable that even
        the addition sustained by the learned CIT(A) was further contested by
        the appellant-company before the ITAT and the ITAT restored the
        matter to the Assessing Officer vide order dated 3V3.1999 in ITA No.
        5249/1991. The concluding part of the Hon'ble Tribunal's order has
        been reproduced in the written submissions of the appellant-company
        as mentioned above. The Assessing Officer examined the issue in
        consonance with the directions of the Hon'ble ITAT and vide its order
        dated 8-3.2002, did not make any disallowance of loss. Thus, almost in
        similar circumstances the loss stands alleged for the immediately
        preceding assessment year. In the present year the loss stands
        disallowed which is entirely for the reason that the appellant itself filed
        revised return of income surrendering the entire loss.
        6.       Considering the entire facts and circumstances mentioned
        above, in my considered opinion, there is hardly any case for levy of
        penalty ;or concealment of income or for furnishing inaccurate
        particulars of income, in t!i3 light of various judicial pronouncements
        referred to above. Accordingly, the penalty of Rs.4,92,124 is deleted."

4.      Now the Revenue is before us. Ld. Sr. D.R. vehemently relied upon

the order of the A.O. and argued that the assessee has concealed the

income, which has been admitted by it by revising the return when

cornered by the A.O. through investigation on the bogus purchase. The

A.O. recorded the statement of Shri Prashant P. Vakil and Shri

Chandravadan N. Shah on oath u/s. 131 and admitted that they have

simply given the accommodation bill to the assessee. Thus, concealment

of income has been established by the A.O. He further relied upon in case
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                                 Page 8

of CIT vs. Usha International Ltd. [2012] 27 227 (Delhi),

wherein identical issue was that revised return was filed by it only when it

was detected and Income Tax Authority had collected material on the

basis of which it could be said that the claim of deduction was false or

bogus. Therefore, Hon'ble Delhi High Court confirmed the penalty u/s.

271(1)(C). He further relied in case of CIT vs. Lallubhai Jogibhai Patel

[2004] 134           TAXMAN 381 (Guj.), wherein investment in car was

suppressed by the assessee at Rs.31,000/-. The Hon'ble Gujarat High

Court held that explanation to Section 271(1)(c) attracted. The assessee

could not revert the presumption.                   Thus, the Tribunal was justified in

confirming the penalty u/s. 271(1)(c). He further relied in case of A.M.

Shah & Co. vs. CIT [2000] 108 TAXMAN 137 (Guj.), wherein serious

discrepancies were found by the A.O. in books of account and excess

sales were shown while purchases were not shown, bogus purchases

were claimed and purchases were not shown in the sales or stock.

Additions were made to gross profits on account of discrepancies. Penalty

u/s. 271(1)(c) held justifiable.                Ld. Sr. D.R. also relied upon in recent

decision of Hon'ble Supreme Court in case of MAK Data (P.) Ltd. vs. CIT

[2013] 38 taxmann.com448 (SC), wherein it has been held that where

offer of surrender of certain amount received as share application money

was made by assessee in view of detection made by Assessing Officer in

search conducted in case of assessee's sister concern, said surrender of
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                             Page 9

income not being voluntary in nature, authorities below were justified in

levying penalty under section 271(1)(c). At the outset, ld. A.R. argued that

assessee suo motu has revised return and did not avail cross examination

of the witness as witnesses were family friends. The assessee had shown

these purchases in the books of account and all payments were made

through account payee cheques.                  He also has drawn our attention on

statement recorded by the ld. A.O. of above two persons and argued that

there is no basis for imposing penalty u/s. 271(1)(c). He also has drawn

our attention on page nos. 1 & 2, where these purchases have been

shown and case laws relied by the assessee before the ld. CIT(A), which

are squarely applicable at this stage also.                He also argued that in

preceding year, the ld. A.O. had accepted the business loss of the same

party. Ld. A.R. requested to confirm the order of the CIT(A).

5.      We have heard the rival contentions and perused the material on

record.       The A.O. has established that assessee has taken bogus

purchase bill to reduce the tax liability.               The A.O. made detailed

investigation on it and when the assessee cornered by the A.O. through

investigation, it revised the return and accepted the loss at Rs.7,81,149/-,

as Hon'ble Supreme Court in case of MAK Data (P.) Ltd. vs. CIT (supra)

has held that the surrender of income not have been voluntary in nature as

detected by the Assessing Officer in search conducted.                  Therefore,

penalty held justifiable by the Hon'ble Supreme Court.                The issue is
I TA No . 2 80 2 /A h d/ 1 2 A. Y. 1 98 9- 90
Th e I TO v s . G e er a F in an c e Lt d.                     Page 10

identical in this case as assessee has revised his return when witnesses

had admitted having been given accommodation entry to the assessee.

Therefore, we have considered view that ld. CIT(A) was not right in

deleting the penalty. Accordingly, we reverse the order of the CIT(A).

6.      In the result, Revenue's appeal is allowed.

 This Order pronounced in open Court on 27.03.2014

        Sd/-                                                   Sd/-
    (D.K.Tyagi)                                           (T.R. Meena)
  Judicial Member                                      Accountant Member
                                           True Copy
     / Copy of Order Forwarded to:-
1.  / Appellant
2. × / Respondent
3.    / Concerned CIT
4.  -  / CIT (A)
5.  ,   ,  / DR, ITAT, Ahmedabad
6. [  / Guard file.
                                                             By order/  ,

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