RAJENDRA TUBES & FITTINGS ,MUMBAI vs. ITO WARD 19(3) (1) , MUMBAI

None appeared for the assessee. At the outset, the Ld. DR for the department pointed out that these are penalty appeals levied by the AO u/s 271(1)(c) of the Act wherein the AO has levied penalty. According to the Ld. DR, the penalty has been upheld by the Ld. CIT(A) and since the assessee has not bothered to appear before this Tribunal, he prayed that the impugned penalty may be confirmed.

Having heard, the Ld. DR and after careful perusal of the record placed before us including the written submission of the assessee, we take the appeal of the assessee for AY 2009-10 as the lead case and the A.Y. 2009-10 & 2010-11 Rajendra Tubes & Fitting. result of the same will be followed in the case of AY 2010-11 since there is no change in facts or law for both years.

Brief fact of the case is that the assessee had filed return of income declaring Rs.1,23,680/- and the same was processed and intimation was received by assessee u/s 143(1) of the Act. Thereafter, the case was reopened and the re-assessment was completed on 12.03.2015 u/s 143(3)/147 of the Act by assessing the total income at Rs.29,82,110/- [i.e. AO made an addition of Rs.28,58,433/- by estimating 12.5% of purchases made from seven (7) parties of Rs.2,28,67,463/- as bogus]. On appeal (quantum appeal), the Ld. CIT(A) confirmed the action of the Ld. CIT(A) which was again confirmed by this Tribunal vide order dated 04.05.2012. Thereafter, the AO issued the show cause notice to the assessee asking why penalty should not be imposed u/s 271(1)(c) of the Act. Pursuant to the same, the assessee filed the reply. However, the AO being not satisfied, penalty was levied at Rs.8,83,256/-, which action of the AO has been confirmed by the Ld. CIT(A). Aggrieved, the assessee is before us against confirmation of penalty for both the AYs. 2009-10 & 2010-11.

We note that from perusal of the scrutiny assessment u/s 143(3)/147 of the Act dated 12.03.2015, the AO had acknowledged that the assessee had filed copies of the bills of the seven parties, copy of the bank statement to show that the transactions happened through the banking channels, copy of the sales tax paid/ VAT challans and copy of the ledger of the seven parties to prove its transaction with them. It is noted that based solely on the information from the Sales A.Y. 2009-10 & 2010-11 Rajendra Tubes & Fitting. Tax Department, the AO has reopened the assessment for both years. The AO in the quantum assessment order u/s 143(3)/147 of the Act had observed as under: - “5.1 After careful consideration of the above submissions, especially as regard quantitative stock tally of the materials traded and evidence of payment made by account payee cheques, it can be inferred that the materials purchased from the alleged bogus party have been identified to have been sold. However, considering the fact that neither of the parties have been produced nor any confirmation from these parties are filed, I am inclined to believe that bills from the said parties are procured for accommodating purchase from the grey market. 5.2 The assessee has produced quantitative tally and evidence of payments also. After considering the entire material, I am of the opinion that the assessee did not purchase the goods from the parties mentioned in the sale bill. At the same time, the assesse might have purchased the goods from other suppliers, may be without bill. Therefore, purchase rate as mentioned in the alleged sales bill cannot be accepted. Any person indulging in the practice of purchasing goods from the grey market and obtaining bogus bills of some other parties, would do so for getting some benefit. The rates may be lower in grey market, there could be benefit of Sale Tax. Hence, the margins achieved must be higher than that made in the course of normal trading. However, since the assessee has furnished complete quantitative disposal of materials, it lends credence to the assessee’s statement that the materials were purchased, but the same could have been sourced from the grey market. Therefore, the preponderance of earning a higher margin of profit cannot be ruled out. In view thereof, I am inclined to believe that an addition on account of higher margin would be fair and equitable. The AR of the assessee has filed details A.Y. 2009-10 & 2010-11 Rajendra Tubes & Fitting. and agreed or addition of 12.5% of hawala purchase amount as per note sheet dated 10.03.2015.

After considering the submission and the discussion as above and finally relying on the Gujarat High Court decisions in the case of CIT Vs Simit P. Sheth (2013) reported in 356 ITR 451 (Guj .) and also giving due consideration to the fact that the assessee has recorded such purchases in the books of account, I am of the considered opinion that 12.5% of total amount of said purchases, which comes to Rs.28,58,433/- is taken as unproved/non-genuine purchases and added to the total income of the assessee. Penalty proceedings ws.271(1)(c) are initiated.”

6. From a perusal of the finding of the AO, it is clear that the AO has accepted the sales and has accepted the fact of purchases since the quantitative details tally. However, according to AO, the assessee might have procured the goods from the grey market. In the light of the aforesaid facts, the AO was of the opinion that the profit embedded in the sales need to be only brought to tax and has estimated the margin of profit at 12.5%. We note that because the assessee failed to produce the parties in question (seven parties) to prove the genuiness of transaction/confirmation from them, the AO had taken the aforesaid action of estimating the profit. Thus, the AO has accepted the sales and estimated the profit only from the purchases made from seven(7) parties and brought to tax the margin of profit which assessee might have tried to save by way of accommodation bill that has been taken care of by making the addition of Rs.28,58,433/- which action of AO has been confirmed by this Tribunal. On the aforesaid facts discussed on the basis of estimation, we are of the opinion that no penalty u/s 271(1)(c) of the Act is warranted. For that we rely on the decision in A.Y. 2009-10 & 2010-11 Rajendra Tubes & Fitting. the case of Balbir Singh Bansal Vs. ACIT in for AY.2009-10 dated 14.01.2020 which read as under: - “4. Upon careful consideration of factual matrix as enumerated in preceding paragraphs, it is observed that the quantum additions have been made primarily because the assessee could not produce the supplier to prove the genuineness of the transactions. Nevertheless, the assessee was in possession of purchase documents. There could be multiple reason for non-production of a third party. It is also settled legal position that levy of penalty is not automatic and merely because the quantum additions were accepted, the same could not automatically lead to imposition of penalty unless the assessee had no bona-fide explanation. The given factual matrix does not convince us to confirm the penalty. Therefore, by deleting the same, we allow the appeal.”

Respectfully following the ratio, laid by this Tribunal in similar case, we are inclined to delete the penalty levied u/s 271(1)(c) of the Act. In the result, the appeals of the assessee are allowed for both the assessment years, since no change in facts or law could be brought to our notice.