INCOME TAX OFFICER-17(2)(1), MUMBAI vs. BHAVIN VINOD SHAH, MUMBAI

The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.

Briefly stated facts necessary for consideration and adjudication of the issues at hand are : on the basis of assessment framed by the Assessing Officer (AO) under section 143(3) read with section 147 of the Act by making addition of Rs.38,59,841/- and Rs.26,59,760/- for A.Y. 2010-11 & 2011-12 respectively on account of non genuine purchases to the extent of 100% of gross profit, which was confirmed by the Ld. CIT(A), however, the same was restricted by the Tribunal to 12.5% of the alleged non genuine purchases, penalty proceedings have been initiated by the AO under section 271(1)(c) of the Act. Declining the contentions raised by the assessee, the AO proceeded to levy the penalty of Rs.1,49,090/- & Rs.1,02,370/- @ 100% tax sought to be evaded.

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 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 12.5% 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, 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.”

Moreover, the Ld. CIT(A) has also rightly taken note of the fact that in the impugned order that the AO has recorded the satisfaction for imposing penalty for concealment of particulars of income whereas he has levied the penalty for furnishing inaccurate particulars of income which goes to prove that the AO was not aware at the time of recording satisfaction as well as at the time of levying the penalty as to which of the limb of section 271(1)(c) of the Act is to be invoked i.e. as to whether the assessee has concealed the particulars of income or has furnished inaccurate particulars of income.

In view of what has been discussed above, we find no illegality or perversity in the impugned orders passed by the Ld. CIT(A) deleting the penalty levied by the AO under section 271(1)(c) of the Act. Hence, aforesaid appeals filed by the Revenue are hereby dismissed.