PRIME DEVELOPERS,MUMBAI vs. DCIT 20(1), MUMBAI

Both the appeals were heard together and are being disposed off by this consolidated order. With the consent of both parties, the case of the assessee in ITA No.140/Mum/2026, pertaining to AY 2007-08 was taken as lead case.

Briefly, the facts of the case are that the assessment in this case was completed u/s 153C read with section 143(3) of the Income Tax Act, 1961 (“the Act”), dated 31st of March, 2016 wherein the Assessing Officer brought to tax bogus purchases amounting to Rs.4,95,937/- and assessed income was determined at Rs.4,95,937/- as against the returned income of NIL. Separately, penalty proceedings u/s 271(1)(c) of the Act were initiated for furnishing inaccurate particulars of income and notice u/s 274 read with section 271(1)(c) was issued on 31st March, 2016. The assessee did not file any appeal against the order so passed by the Assessing Officer, therefore, as far as quantum proceedings are concerned, the same have attained finality.

Subsequently, the Assessing Officer issued a fresh show-cause notice dated 24th June, 2016 and after considering the reply filed by the assessee, but not finding the same acceptable, the Assessing Officer recorded his satisfaction that the assessee has deliberately furnished inaccurate particulars of income within the meaning of section 271(1)(c) of the Act read with explanation 1 thereto and penalty amounting to 100% of the tax sought to be evaded was levied on the assessee amounting to Rs.1,66,930/-.

The Assessee thereafter carried the matter in appeal before the Ld. CIT(A), who has since sustained the findings of the Assessing Officer and against the said order, the assessee is in appeal before us.

During the course of hearing, the Ld.AR submitted that the assessee is engaged in the business of construction and development and for the year under consideration, it filed NIL return of income, declaring no income or loss from its business. In this regard, our reference was drawn

Further, our reference was drawn to the submissions filed before the Assessing Officer in response to the penalty notice and it was submitted that in its submissions, the assessee has submitted that the Assessing Officer in the quantum proceedings has merely relied on the statement of Mr. Dheeraj Kumar Jain and other than that there are no other evidences of enquiries conducted by the Assessing officer regarding the genuineness of the purchases so made by the assessee. It was submitted that even from the statement, it could be seen that Mr. Dheeraj Kumar Jain has not admitted to have provided accommodation entries, he has only expressed his inability to substantiate genuineness of the purchases and there is no admission that the purchases are bogus. It was, accordingly, submitted that very basis of the addition is questionable. However, to avoid protected litigation and to buy peace with the department, the assessee has chosen not to file an appeal and pay taxes. However, the same should not be interpreted as admission or acknowledgement of the said transaction being bogus. It was further submitted that the assessee has purchased building material from the said entities which have been used in the construction project, the invoices/supporting documents were duly submitted and the payments have been made through account pay cheques. It was submitted that these entities were registered dealers under the MVAT Act at the time of purchase of the goods and the investigation carried out by the MVAT department was subsequent to the purchases and the assessee was not aware of the allegations made by the MVAT department. It was submitted that as far as the assessee is concerned, it has filed the necessary confirmation of supplied goods, copy of the invoices and the payment through account pay cheque during the course of assessment proceedings. It was also brought to the notice of the Assessing Officer during the penalty proceedings that there was no evidence/supporting document available with the department to show the supplied goods sold to the

Per contra, the Ld. DR has been heard, who has relied on the findings of the lower authorities. It was submitted that the Ld. AR has argued that the purchases were genuine, supported by invoices and cheque payments and that additions were made only on the basis of information in the MVAT department without any independent enquiry. However, the fact remains that the parties from whom the purchase were made, were identified as accommodation entry providers and the assessee has failed to establish the genuineness of the transactions during the assessment proceedings. Mere filing of bills or bank statements does not prove that the purchasers were genuine and the suppliers were found to be non-existent and therefore the explanation offered was not found convincing and the

We have heard the rival contentions and perused the material available on record. It is a settled legal proposition that the penalty provisions need to be construed strictly and the necessary conditions for invoking the charge pursuant to which the penalty has been levied need to be satisfied and in absence of which, the penalty so levied cannot be sustained. In the instant case, the penalty has been levied u/s 271(1)(c) of the Act which provides that where the Assessing officer is satisfied that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such assessee shall pay by way of penalty a sum which shall not be less than but not exceeding three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or furnishing inaccurate particulars of such income. The amount of tax sought to be evaded has been further defined in explanation 4 to section 271(1)(c) of the Act. As we have noted supra, in its financial statements, the assessee has shown work in progress of Rs. 12,59,66,725/- on the asset side of the balance- sheet and advances against flat booking from the customers amounting to Rs.98,72,000/- on the liability side of balance-sheet and it follows completed contract method of accounting and for the year under consideration, it has neither claimed any expenses nor booked any revenues and the expenses were shown as part of work in progress and advances from customers were shown as liabilities. The purchases which are subject matter of present dispute has been shown as part of work-in-

Mere fact that the Assessing Officer has brought to tax a sum of Rs.4,59,937/- in the quantum proceedings doesn‟t ipso-facto result in levying of penalty and as we have stated earlier, necessary conditions for levy of penalty must exist before the charge can be fastened on the assessee. Even where the quantum proceedings have attained finality, penalty proceedings being separate proceedings, the assessee can lead necessary explanation to demonstrate non-levy of penalty. In the instant case, we find force in the explanation advanced by the ld AR that if at all, any addition was to be made, the same would be by way of reducing the work in progress and, therefore, there is no question of any separate addition by way of disallowance of expenses in the hands of the assessee for the year under consideration and consequentially, the question of furnishing inaccurate particulars of income and tax sought to be evaded does not arise for consideration and the AO has wrongly levied penalty

In ITA No. 141/Mum/2026, both the parties fairly submitted that facts and circumstances of the case are identical and similar contentions as raised in ITA No. 140/Mum/2026 be considered except for change in figures. Following the discussions and findings in ITA No. 140/Mum/2026, the penalty so levied u/s 271(1)(c) amounting to Rs 1,66,932/- is hereby directed to be deleted.

In the result, both the appeals filed by the assessee are allowed.