ANANT PLASTIC INDUSTRIES,MUMBAI vs. ITO WARD-30(1)(1), MUMBAI

The appellant, M/s. Anant Plastic Industries (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 23.12.2022 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] confirming the penalty of Rs.1,84,720/- levied by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961 2 M/s. Anant Plastic Industries (for short ‘the Act’) qua the assessment year 2009-10 on the grounds inter-alia that :- “1. The Ld. CIT (A) erred in confirming Penalty of Rs. 1,84,720 levied by AO US. 271 (1) (e). 2. The Ld. CIT (A) failed to appreciate that penalty was levied on addition amount to Income of Rs. 5,97,792 which itself was based on estimation hence not a case of Penalty U/S. 271 (1) (c). 3. The Appellant craves leave to add, alter or amend the above Grounds of Appeal.”

We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light 3 M/s. Anant Plastic Industries of the facts and circumstances of the case and law applicable thereto.

Undisputedly entire addition in this case was made by the AO as well as the Ld. CIT(A) on the basis of guess work and estimation merely on the basis of some alleged information received from the Sales tax Department that the assessee has taken bogus purchase bills without having taken any delivery of goods, without applying their mind. It is also not in dispute that the AO has not examined the books of account of the assessee nor has reached the definite conclusion that the bills for purchasing the goods relied upon by the assessee are bogus but simply made the addition on the basis of information received by the Directorate General of Income Tax (Investigation) [DGIT(Inv.)], from Sales Tax Department of Maharashtra. It is also not in dispute that during the second round of appeal the Tribunal has restricted the addition again on the basis of estimation to 6% of the alleged bogus purchases.

In the backdrop of the aforesaid undisputed facts when we examine the mandate of provisions contained under section 271(1)(c) of the Act the Assessing Authority must have reached the definite conclusion on the basis of independent enquiry that such and such bills were found non genuine/bogus and the assessee has thereby furnished inaccurate particulars of income during the assessment proceedings to conceal his income but no such findings have come on record. In these circumstances penalty levied by the AO is not sustainable in the eyes of law. Co-ordinate Bench of Tribunal in case of Shri Ajay Loknath Lohia, ITA 4 M/s. Anant Plastic Industries No.2998/Mum/2017 for the AY 2009-10 vide order dated 05.10.2018 has decided the identical issue levying the penalty under section 271(1)(c) of the Act in case of bogus purchases, in favour of the assessee by returning following findings: “Having heard both sides, we find merit in the arguments of the assessee for the reason that although the AO has estimated 25% gross profit on alleged bogus purchases, never made any observations with regard to the incorrectness in details filed by the assessee to prove such purchases. The AO never disbelieved information filed by the assessee, but the proceeded on the basis of information received from sales-tax department to make additions. The AO has made such addition on ad hoc basis by estimating gross profit on alleged bogus purchases. From these facts, it is very clear that the AO failed to make a case of deliberate attempt by the assessee to furnish inaccurate particulars of income. Therefore, we are of the considered view that mere ITA 2998/Mum/2017 disallowance of purchases on ad hoc basis does not tantamount to wilful furnishing inaccurate particulars of income within the meaning of section 271(1)(c) of the Income Tax Act, 1961. Hence, we are of the considered view that the AO was erred in levying penalty u/s. 271(1)(c) of the Act. Accordingly we direct the AO to delete penalty levied u/s. 271(1)(c) of the Act.”

We are of the considered view that where the entire addition is made on the basis of estimation and guess work by the AO, the Ld. CIT(A) as well as the Tribunal provisions contained under section 271(1)(c) of the Act are not attracted. Hence, penalty levied by the AO and confirmed by the Ld. CIT(A) is not sustainable and as such is ordered to be deleted.

Resultantly, the appeal filed by the assessee is allowed.