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Facts
The assessee's case was reopened based on information of obtaining accommodation bills from bogus dealers to inflate purchases. The original assessment led to additions for bogus purchases. Subsequently, a penalty under Section 271(1)(c) was levied after a show-cause notice.
Held
The Tribunal held that while the quantum proceedings established the purchases as bogus and led to additions of profit embedded therein (12.5%), the penalty order wrongly charged concealment of income instead of furnishing inaccurate particulars. Due to the disconnect between the charge and the findings, the penalty could not be sustained.
Key Issues
Whether penalty under Section 271(1)(c) can be sustained when the specific charge of concealment of income is not established, despite findings of bogus purchases and furnishing of inaccurate particulars?
Sections Cited
271(1)(c), 148, 143(3), 147
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Income Tax Appellate Tribunal, MUMBAI “A” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE
Assessment Year : 2009-10 Anil K. Shah (HUF), Income Tax Officer, 703, Supershav, Nahur Road, Ward-41(2)(1), Sarvodaya Nagar, vs. Room No. 636, Mulund (West), Kautilya Bhavan, Mumbai-400080. Bandra Kurla Complex, PAN : AADHA5072M Bandra East, Mumbai-400051. (Appellant) (Respondent) For Assessee : Shri Devendra Jain & Shri Shashank Mehta For Revenue : Shri Surendra Mohan, Sr.DR Date of Hearing : 10-09-2025 Date of Pronouncement : 16-09-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 25-04-2025, pertaining to Assessment Year (AY) 2009-10, challenging the sustenance of levy of penalty of Rs. 6,96,096/- u/s. 271(1)(c) of the Income Tax Act, 1961 („the Act‟).
Briefly the facts of the case are that the assessee filed its return of income, declaring total income of Rs. 7,92,587/-. Subsequently, the case of the assessee was reopened on the basis of the information received from DGIT (Investigation), Mumbai that the assessee had obtained accommodation bills from bogus dealers in order to inflate the purchases and notice u/s. 148 of the Act was issued. Thereafter, after issuance of notices calling for the necessary information and documentation, the assessment order was passed u/s. 143(3) r.w.s. 147 of the Act, wherein the assessed income was determined at Rs. 5,38,54,780/-, after making various additions, including additions on account of bogus purchases amounting to Rs. 17,19,214/-. Thereafter, the assessee carried the matter in appeal before the Ld.CIT(A) and thereafter before the Tribunal and the Co-ordinate Bench of the Tribunal vide its order dt.10-09-2020 in has partly allowed the grounds raised by the assessee, whereby the purchases made from two bogus traders amounting to Rs. 17,19,214/- were held as „bogus‟. At the same time, the AO was directed to restrict the addition @12.5% of the total bogus purchases and the remaining addition was directed to be deleted. The AO subsequently, gave the appeal effect order to the Tribunal order vide his order dt.02-02-2021 followed by rectification order dt. 04-08-2021, where the total income was computed at Rs. 10,07,489/-. Thereafter, a fresh show cause u/s. 271(1)(c) of the Act dt. 20-02-2021 was issued to the assessee calling for the explanation as to why the penalty u/s. 271(1)(c) of the Act should not be levied. In response, the assessee filed its reply on 13-07-2021, wherein it did not raise any objection thereafter, the AO recorded his satisfaction that the assessee had deliberately concealed the particulars of income with a malicious intention of evading tax and it is a fit case of levy of penalty u/s. 271(1)(c) of the Act and penalty amounting to Rs. 6,96,096/- was levied by the AO with the approval of the Competent authority.
The assessee, thereafter carried the matter in appeal before the Ld.CIT(A) and the Ld.CIT(A) has since sustained the penalty and against the said order, the assessee is in appeal before us.
During the course of hearing, the Ld. AR drawn our reference to the order passed by the Co-ordinate Bench of the Tribunal in the quantum proceedings and submitted that the Co-ordinate Bench of the Tribunal has reduced the addition on account of bogus purchases from 100% made by the AO to 12.5% and, therefore, it is a clear case of estimation of income by way of disallowance of the purchases and, therefore, on such estimation, penalty cannot be levied and in support, reliance was placed on the decision of the Co-ordinate Bench of the Tribunal in the case of Mohammed Sharif vs. ITO in dt. 20-05-2019.
In his submissions, the Ld.DR supported the order passed by the AO and our reference was drawn to the penalty order passed by the AO u/s. 271(1)(c) of the Act where in para „2‟ of the order, the AO has stated that the assessee did not produce delivery challans, transport bills, stock register, quantitative reconciliation of purchase and sales and the assessee has failed to establish the genuineness of the purchases made from two bogus traders amounting to Rs. 17,19,214/- and thereafter, our reference was drawn to the Tribunal‟s order, wherein the addition was restricted to 12.5%, following the Hon‟ble Gujarat High Court decision in the case of CIT vs. Simit P. Seth 356 ITR 451 (Guj). It was submitted that the Co- ordinate Bench of the Tribunal has recorded clear finding that it is a case of bogus purchases and the said order has since attained finality and the assessee has not challenged the said order before the Hon‟ble High Court and the said findings have a clear bearing on the issue of levy of penalty in absence of any rebuttal to the said findings by the assessee during the course of penalty proceedings either before the AO or before the Ld.CIT(A). Further reliance was placed on the decision of the Hon‟ble Bombay High Court in the cases of PCIT vs. Kanak Impex (India) Ltd., [2025] 172 taxmann.com 283 (Bombay) and PCIT vs. Drisha Impex (P.) Ltd. [2025] 173 taxmann.com 571 (Bombay). It was accordingly submitted that it is a clear case of bogus purchases and the said finding has been upheld by the Tribunal and, therefore, it is a clear case of levy of penalty and which has been rightly confirmed by the Ld. CIT(A).
In his rejoinder, the assessee has submitted that the aforesaid decisions relied upon by the Ld.DR were rendered by the Hon‟ble Bombay High Court in the context of quantum proceedings and not in the context of penalty proceedings. It was submitted that in the instant case, the Revenue has not challenged the order so passed by the Co-ordinate Bench of the Tribunal in the quantum proceedings and, therefore, the same has attained finality and our reference was again drawn to the order of the Co-ordinate Bench of the Tribunal in quantum proceedings and it was submitted that the Co-ordinate Bench of the Tribunal has reduced the addition from 100% to 12.5% and, therefore, it is a case of estimation of income and on such estimation, there cannot be any levy of penalty. Further, reference was drawn to the penalty order so passed by the AO, wherein the AO has levied penalty for concealing the particulars of income. It was submitted that it is not a case of concealment of particulars of income as nothing has been found which has been concealed and brought to tax. It was further submitted that all the requisite particulars were duly submitted in terms of purchases and corresponding sales made by the assessee and therefore, in absence of proper charge by the AO, the levy of penalty cannot be sustained.
We have heard the rival contentions and perused the material available on record. Though it is a case of levy of penalty, both the parties have relied heavily on the order of the Co-ordinate Bench in the quantum proceedings which has since attained finality and relevant findings therein read as under:
“9. So far as the addition on account of bogus purchases is concerned, we notice that the assessee did not produce delivery challan, transport bill, stock register, quantitative reconciliation of purchases and sales. As per the audit report, the assessee had not maintained the stock register. In our considered view, the assessee has failed to establish the genuineness of the purchases made from two bogus traders amounting to Rs. 17,19,214/-, therefore, the authorities below have rightly held the said transaction as bogus. We further notice that the authorities below have not rejected the sales of the assessee. As contended by the Ld. counsel, there can be no sales without any purchases. The facts and the circumstances of the case suggest that the assessee had purchased the material from grey market and evaded the applicable taxes. Therefore, addition to the extent of profit earned from such transaction and the applicable taxes evaded by the assessee is required to be made. The Hon’ble Gujarat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) has upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases shown by the assessee holding that only profit element embedded in such purchases can be added to income of the assessee.
Hence, in view of the facts and circumstance of the case and in the light of the ratio laid down by the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth (supra), we partly allow ground No 2 raised by the assessee and direct the AO to make addition @ 12.5% of the total amount of bogus purchases upheld by the Ld. CIT (A) and to delete the remaining additions sustained by the Ld. CIT (A).”
We, therefore, find that the Co-ordinate Bench has recorded a categorical finding that the assessee has failed to establish the genuineness of purchases made from two bogus traders amounting to Rs. 17,19,214 and such transactions were held to be bogus in nature in absence of necessary documentation in support of such transactions. Further, referring to the fact that the AO has not rejected the sales and the purchases may have been made from grey market, profit earned on such transactions were required to be brought to tax, addition to the extent of 12.5% of such bogus purchases were upheld and remaining additions were directed to be deleted. We therefore find that as far as the particulars of two purchase transactions as so reflected in the books of accounts are concerned, the same were held to be bogus in nature. In other words, the particulars so reflected in the books of accounts were found to be false, inaccurate and erroneous. At the same time, while quantifying the amount of disallowance specially given the fact that the sale are not doubted, the quantification of disallowance was reduced from 100% to 12.5% in order to tax the profit embedded therein. Therefore, we find that in absence of any fresh rebuttal in the penalty proceedings, the said findings have a clear bearing on the matter under consideration and it is therefore a case of furnishing of inaccurate particulars of income. The AO while levying the penalty has however held that the assessee has concealed the particulars of his income. Nothing has been specified as to how the assessee has concealed the particulars of income. We, therefore, find that there is a clear disconnect between the facts of the present case and the charge which has been fastened on the assessee and in absence of requisite charge, the levy of penalty cannot be sustained as it is a settled legal proposition that penalty provisions have to be strictly construed and conditions therein must exist. The AO has to record a specific finding before levying the charge as to how the case of assessee falls under the respective charges and in absence of requisite finding, the levy of penalty cannot be sustained and the same is hereby directed to be deleted.
In the result, the appeal of the assessee is allowed.