OPTART ELECTRONICS PVT. LTD.,AHMEDABAD vs. ITO, WARD-3(1)(3),, AHMEDABAD

And during the enquiry proceedings before Investigation Wing statement on oath of one Shri Bhavesh Ramesh Patel was recorded and he admitted that he did not render any actual services or supply goods but enterprise was only. And as per information received, assessee company has paid 13,84,663/- by cheque to the bogus billers Akshar Enterprise, but no actual services of goods were provided by the said company. As assessee could not discharge its onus that it has actually purchased any goods from the bogus billers as the biller has admitted that he was not maintaining any bill book but only signing the cheque book. Therefore, Ld. A.O. u/s. 40A(3) as purchases were made in cash were liable for 100% disallowance and made addition of Rs. 13,84,663/-.

Against the said order, assessee preferred first statutory appeal before the Ld. CIT(A) and Ld. CIT(A) relying upon the judgment of N.K. Proteins/Vijay Proteins etc. wherein ITAT has held 2f5% as reasonable rate of profit on purchases made from bogus billers and directed A.O. to consider 25% of 13,84,663/- i.e. Rs. 3,46,165/- as the profit of the appellant.

Now assessee has come before us by way of second statutory appeal. The confirming of 25% all the profit of the total addition made by the A.O.

We have heard both the parties and perused material available on record. Ld. A.R. cited a judgment of ITAT, Mumbai Bench in in the case of ACIT vs. M/s. Shankheshwar Real Estate Co., wherein additions of 12.5% alleged bogus purchases was confirmed after relying the following judgment:

Since above said order by the ITAT Mumbai have been passed after considering this different Tribunal/High Court and thereafter confirmed 12.5% of the alleged bogus purchases. Thus, in parity with the aforesaid order, we direct A.O. to confirm 12.5% instead of 25% confirmed of the bogus purchase by the Ld. CIT(A).

In the result, appeal filed by the Assessee is partly allowed.

Now we come to Penalty Appeal in wherein penalty of Rs. 4,27,861/- was confirmed by the lower authorities.

In this case, addition have been made on the basis of estimation only and it is a basic need of provisions of law that definite finding is required to be recorded by the Assessing Officer for reaching to a conclusion with regard to concealment of income or furnishing inaccurate particular of income and without such finding, there cannot be any question of imposition of penalty u/s. 271(1)(c). We find that Ld. CIT(A) confirmed 25% of the total so called bogus purchases but the Hon’ble Delhi High Court in the matter of CIT vs. Aero Traders Pvt. Ltd. (supra) has held no penalty u/s. 271(1)(c) of the Act can be imposed when income is determined on estimation basis.

And the Hon’ble Gujarat High Court in the matter of CIT vs. Subhash Trading Company has held that “ where income is assessed on estimate basis after rejecting book results penalty 271(1)(c) cannot be imposed by mere application of explanation thereof in the absence of any evidence to conclude a position finding that there was concealment of income. & 2461/Ahd/2018 5 . A.Y. 2013-14 12. And similar view has been taken by the Hon’ble Punjab & Haryana High Court in the case of Harigopal Singh vs. CIT (supra) by observing when provisions of sectin 271(1)(c) are not attractive cases where income of assessee assessee’s assessed on estimate basis and additions are made therein on that basis.

Respectfully following the aforesaid judgment, we delete the penalty of the assessee.

In the result, Penalty appeal filed by the Assessee is allowed.