ITO -34(2)(1), MUMBAI vs. MANOJ DINESHCHANDRA CHITALIYA, MUMBAI

O R D E R PER S. RIFAUR RAHMAN (AM)

2 ITA.NO. 1494/MUM/2023 (A.Y: 2009-10) Manoj Dineshchandra Chitaliya 2. Briefly stated the facts are that, assessee an individual and engaged in the business of trading in Iron and Steel under the proprietorship concern "M/s. J.D. Steel" and filed return of income on 14.09.2009 declaring income of ₹.4,39,217/- for the A.Y.2009-10. The return was processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the Sales Tax Department, Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. Accordingly, assessment was reopened u/s. 147 of the Act and completed the re-assessment on 28.03.2014 u/s. 143(3) r.w.s. 147 of the Act determining the income at ₹.22,22,619/-. While completing the reassessment the Assessing Officer treated purchases of ₹.17,83,402/- made from Tata Enterprises and Jai Mata Di Trading as non-genuine on the basis of the information received from Sales Tax Department, Mumbai that assessee has received accommodation entries from those dealers without making any purchases but made purchases only in gray market. The Assessing Officer treated such purchases as non-genuine as the assessee could not produce any delivery challans to prove that goods have been actually received by the assessee from the alleged suppliers.

3 ITA.NO. 1494/MUM/2023 (A.Y: 2009-10) Manoj Dineshchandra Chitaliya 3. Aggrieved with the above order, assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions. Ld.CIT(A) After considering the disallowance partly allowed the grounds raised by the assessee by estimating the profit @12.5% of the alleged bogus purchases. Subsequently, Assessing Officer initiated penalty proceedings and levied penalty of ₹.62,624/- u/s. 271(1)(c) of the Act, stating that the assessee has furnished inaccurate particulars of its income and concealed its income within the meaning of section 271(1)(c) r.w. Explanation 1 of the Act. On appeal the Ld.CIT(A) deleted the penalty levied by the Assessing Officer.

"1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting penalty levied u/s 271(1)(c) without appreciating that the penalty was levied in respect of quantum addition confirmed by Hon'ble ITAT on account of purchases from parties debited in the books of account which proved bogus on the basis of information received from external sources in the nature of law enforcement agencies and other facts and material on record wherein the onus was on the assessee to establish the genuineness of such purchases by production of such parties before the assessing officer and the assessee failed to discharge his onus." 2. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting penalty merely because the addition was confirmed on estimated basis, through the estimation was necessitated because the books of account were proved false as purchases from bogus parties were debited therein."

4 ITA.NO. 1494/MUM/2023 (A.Y: 2009-10) Manoj Dineshchandra Chitaliya 5. At the time of hearing, Ld. Counsel for the assessee reiterated the submissions made before the Ld.CIT(A). Ld. Counsel for the assessee further submitted that the penalty cannot be imposed when the estimation is made on adhoc basis and requested to delete the penalty levied by the Assessing Officer. In this regard he relied on the decision of the Coordinate Bench in the case of ITO v. M/s. Stripco Springs Pvt. Ltd., in ITA.No. 6340/Mum/2019 dated 06.04.2021. Copy of the order is placed on record.

5 ITA.NO. 1494/MUM/2023 (A.Y: 2009-10) Manoj Dineshchandra Chitaliya “6. We have heard the rival submissions, perused the orders of the authorities below. In so far as the penalty levied on estimation of profit element on purchases is concerned, we are of the view that Assessing Officer had made only adhoc estimation of profit on certain purchases treated as unexplained expenditure. Assessing Officer did not doubt the sales made by the assessee from out of such purchases. Assessing Officer based on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [356 ITR 451] estimated the profit element in such purchases at 12.5% and by reducing the Gross Profit already declared by the assessee. In the circumstances, we hold that there is no concealment of income or furnishing of inaccurate particulars as the profit element was determined by way of adhoc estimation. Coming to the interest, the assessee furnished complete details in the return of income and made a claim and simply because the claim is denied and cannot lead to furnishing of inaccurate particulars or concealment of income. No allegation by Assessing Officer that the assessee failed to disclose the particulars relating to its claim in the return of income. Thus we hold that there is no concealment of income or furnishing of inaccurate particulars of income. Thus we direct the Assessing Officer to delete the penalty levied u/s. 271(1)(c) of the Act.”

4. In order to attract Clause (c) of Section 271(1) of the Act, it is necessary that there must be concealment by the assessee of the particulars of his income or if he furnishes inaccurate particulars of such income. What is to be seen is whether the assessee in the present case had concealed his income as held by the Assessing Officer and the Tribunal. He had not maintained any accounts and he filed his return of income on estimate basis. The Assessing Officer did not agree with the estimate of the assessee and brought his income to tax by increasing it to Rs. 2,07,500. This, too, was on estimate basis. The Tribunal agreed that the income of the assessee had to be assessed on an estimate of the turnover but was of the view that the estimate as made by the Assessing Officer was highly excessive and it fixed the total income of the assessee at Rs. 1,50,000 for the year under appeal. It is, thus, clear that there was a difference of opinion as regards the estimate of the income of the assessee. Since the Assessing Officer and the Tribunal adopted different estimates in assessing the income of the assessee, it cannot be said that the assessee had "concealed the particulars of his income" so as to attract Clause (c) of Section 271(1) of the Act. There is not even an iota of evidence on the record to show that the income of the assessee during the year under appeal was more than the income returned by him. Additions in his income were made, as already observed, on estimate basis and that by itself does not lead to the conclusion that the assessee either concealed the particulars of his income or furnished inaccurate particulars of such income. There has to be a positive act of concealment on his part and the onus to prove this is on the Department. We are also of the considered view that the Tribunal grossly erred in law in relying on Explanation 1(B) to Section 271(1)(c) of the Act to raise a presumption against the assessee. The assessee had justified his estimate of income on the basis of household expenditure and other investments made during the relevant period. It is not the case of the Revenue that he had, in fact, incurred expenditure in excess of what he had stated. In this view of the matter, it cannot be said that the explanation furnished by the assessee had not been substantiated or that he had failed to prove that such explanation was not bona fide.

7 ITA.NO. 1494/MUM/2023 (A.Y: 2009-10) Manoj Dineshchandra Chitaliya 5. In the result, the appeal is allowed and the question posed in the earlier part of the order is answered in the negative holding that the provisions of Section 271(1)(c) of the Act are not attracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein on that basis.”

Order pronounced in the open court on 15th September, 2023.