SHRI MANISH C. RUPARELIYA,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-3(3), AHMEDABAD

This appeal has been filed by the assessee against order dated 09/09/2016 passed by the Ld. Commissioner of Income Tax (Appeals) – 3, Ahmedabad {CIT (Appeals)} for assessment year 2009 –10 wherein, vide the impugned order, he has confirmed the penalty of Rs. 4,74,805/- imposed under ITA 3203/AHD/2016 AY: 2009-10 section 271 (1) (c) of the Income Tax Act, 1961 (hereinafter called ‘the Act’).

2.0 The brief facts of the case are that in this case the return of income was filed at an income of Rs. 5,02,528/-. After initially processing the return under section 143 (1) of the Act, the assessee’s case was selected for scrutiny through CASS.

During the course of assessment proceedings, the assessing officer noted that the assessee had shown creditors of Rs. 1,07,94,642/-. Notices under section 133 (6) of the Act were issued to verify the genuineness of the same on test check basis at the addresses provided by the assessee. One of the creditors, namely, M/s Simplex Industries was not traceable at the address provided by the assessee. The Inspector of Income Tax also, in his report, informed that this creditor did not exist at the given address. The assessing officer directed the assessee to produce the creditor before him for verification. However, the assessee could not produce the said party. The assessing officer treated this creditor as not genuine and the credit amount appearing against this party to the tune of Rs. 13,80,000/- was treated as income of the assessee.

ITA 3203/AHD/2016 AY: 2009-10 2.1 The assessee’s appeal before the Ld. CIT (Appeals) was dismissed. On further appeal before the Income Tax Appellate Tribunal, the Tribunal in vide order dated 17/10/2017, held that instead of the total disallowance of the amount of credit standing against the name of the said party, a margin of 25% on goods of Rs. 13,80,000/- should be added to the income of the assessee meaning thereby that an addition of Rs. 3,45,000/- would meet the ends of justice.

2.2 Subsequently, the assessing officer posed a penalty of Rs. 4,74,805/- under section 271 (1) (c) of the Act which was upheld by the Ld. CIT (Appeals).

2.3 Now the assessee is before the Tribunal challenging the confirmation of the penalty by the Ld. first appellate authority.

3.0 The Ld. authorised representative submitted that the penalty had been imposed on addition which was partly confirmed only on the basis of estimation. It was submitted that no penalty was imposable on an addition which was estimated. It was submitted that although the assessing officer had doubted the creditor’s genuineness, the purchases and sales had been accepted and no adverse inference had been drawn in this ITA 3203/AHD/2016 AY: 2009-10 regard. It was further submitted that the relevant details relating to the said creditor were duly furnished before the lower authorities and it was beyond the control of the assessee that the creditor was not found at the address provided. It was prayed that the penalty imposed should be deleted.

4.0 In response, the Ld. senior departmental representative submitted that the fact of the matter remained that the quantum addition had been confirmed to the extent of 25% and the Tribunal had also noted in the order confirming the quantum addition that the addition was being confirmed due to the clandestine activity of the assessee. It was submitted that it was a case fit for imposition of penalty and, therefore, the same should be upheld.

5.0 We have heard the rival submissions and have also perused the material on record. It is undisputed that the said creditor i.e. M/s Simplex Industries was not found at the address provided by the assessee and even when the Inspector of Income Tax was deputed to verify the existence of the said party, no such party was found at the address provided by the assessee. The assessee was required to produce the party for verification before the assessing officer and the assessee failed to do so. Not only ITA 3203/AHD/2016 AY: 2009-10 this, the assessee also could not provide the new address, if any, of this party. The assessee only provided a copy of the Ledger account of the party to the assessing officer to discharge his onus. It appears rather strange and unbelievable that the assessee would not be having the address of one of its sundry creditors. The co-ordinate bench of the Tribunal, while confirming the quantum addition to the tune of 25%, also noted that the addition was called for in view of the clandestine activities of the assessee. We are of the considered opinion that although penalty u/s 271(1)(c) of the Act is usually not imposable in a case where addition is made/sustained on an estimate, such judicial precedent is to be applied only where the assessee comes clean and proves his bona fide. Unfortunately, in the present case, the assessee has failed miserably in discharging the onus cast on him to establish the genuineness of the creditor and going by the sequence of events and facts of the case, the bona fide of the assessee are also under doubt. In such a situation, it is our considered opinion that the impugned penalty has been rightly imposed by the assessing officer. However, since the quantum addition has been scaled down to the tune of 25% of the original addition, the resultant penalty would also have to be ITA 3203/AHD/2016 AY: 2009-10 recomputed. Accordingly, while confirming the imposition of penalty, we restore the re-computation of penalty to the file of the assessing officer.

6.0 In the final result, the appeal of the assessee stands partly allowed for statistical purposes.