SCORDITTE STAINLESS INDIA PVT. LTD,MUMBAI vs. ACIT CIR 5(3) (1), MUMBAI

order : 08.09.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 18.10.2021, passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „the CIT(A)‟] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] for the Assessment Year 2012-13, whereby the CIT(A) had dismissed the appeal against the order, dated 28.09.2018, passed under Section 271(1)(c) of the Act levying penalty of INR 37,25,254/-.

2. That without prejudice to appeal ground no.1, even on merit of the case, the Id. A.O. & also Id. CIT (Appeals) both have erred on facts of the case and in law in imposing and confirming the penalty u/s. 271(1)(c) at Rs.37,25,254/- without properly appreciating that disallowance subjected to impugned penalty was confirmed on estimate basis and the very basis and quantum of subject disallowance made by Id. A.O. was modified differently by appellate authorities. In view of the same impugned penalty imposed being wrong on facts and bad in law therefore same kindly be deleted.

5. Since the Assessing Officer had also initiated penalty proceedings under Section 271(1)(c) of the Act, the Assessing Officer passed penalty order on 28.09.2018 levying penalty of INR 37,25,254/- being tax sought to be evaded on the concealed income of INR 12,88,648/- (12.5% of INR 9,03,09,184/-). Being aggrieved, the Appellant preferred appeal before CIT(A) which was dismissed. Now the Appellant is in appeal before us.

6. The Ld. Authorized Representative of the Appellant submitted the issue in the present appeal is covered in favour of the Appellant by the judgment of the Full Bench of the Hon‟ble Bombay High Court in the case of Mohd. Farhan A Shaikh Vs. DCIT, Central Circle-1, Belgaum reported in 434 ITR 1 (Bombay), as the penalty notice, dated 30.03.2015 has been issued without deleting or striking off inapplicable part. He further submitted that even on merits, the Mumbai Bench of the Tribunal has, in the case of Orient Fabritech Pvt. Ltd. vs. ITO, Range- 1(2)(4): in identical facts and circumstances, deleted the penalty levied where additions were made on the estimate 3 basis. Per contra, the Ld. Departmental Representative relied upon the penalty order to support his case.

7. We have heard the parties, perused the record and considered legal position. The full Bench of the Hon‟ble Bombay High Court in the case Mohd. Farhan A Shaikh Vs. DCIT (supra) has held that a mere defect in the notice - not striking off the irrelevant matter, would vitiate the penalty proceedings. The relevant extract of the aforesaid judgment reads as under:

Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.

“The above said amount of Rs. 1,12,88,648/- accordingly could only be brought to tax only after the case was selected for scrutiny on the basis of information received from the Investigation Wing in respect of Bogus Purchases. Moreover the CIT(A) and ITAT has confirmed the Bogus purchases made by the assessee at 12.5% of Bogus Purchases.

Had the case being not selected for scrutiny, the above sum could not be brought to tax as assessee fail to disclose same amount in the Return of Income filed u/s 139(1) of the I.T. Act, 1961. Therefore it is prove that the assessee has concealed particulars of income by furnishing inaccurate particulars of income. Therefore, it is evident that the assessee has conceal income to evade payment of taxes which attract penalty proceeding u/s 271(1)(c) of the I.T. Act, 1961 which states as under: xx xx In view of the above details discussion of the facts of the cases, I deem this is a fit case to levy penalty u/s 271(1)(c) of the Income Tax Act, 1961.” (Emphasis supplied)

“4. Both sides heard, orders of the authorities below examined. The assessee is in appeal against levy of penalty in respect of assessee‟s involvement in obtaining bogus purchase bills. In quantum proceedings, the AO made addition of the entire alleged bogus purchases. The matter travelled to the Tribunal, the Tribunal restricted the addition to 12.5% of the alleged bogus purchases. The addition has been made in the hands of assessee on account of bogus purchase merely on estimations. It is an accepted legal position that no penalty under section 271(1)(c) of the Act can be levied where additions are made on estimate. [Re: CIT Vs. Krishi Tyre Re-trading & Rubber Industries 360 ITR 580(Raj.), CIT Vs. Subhash Trading Company 221 ITR 110 (Guj.), CIT Vs. Sangrur Vanaspati Mills Ltd. 303 ITR 53 (P&H)].