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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. Both the appeals are filed by the appellant/assessee against the order of Learned Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ―CIT(A)‖], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred Page | 1 to as ―the Act‖] dated 14.02.2024 for the A.Y. 2009-10 and 2010-11 respectively, wherein the Ld. CIT(A) has dismissed the appeals on account of estimation on bogus purchases.
2. Since the facts of both the appeals filed by the assessee are exactly same and parties are same, hence both the appeals are taken up together in order to avoid the multiplicity of the decision. First of all, we are taking for AY 2009-10 as lead case.
The brief facts of the case are that the assessee is an individual filed its return of income on 23.9.2009 declaring total income Rs. 2,87,560/-. The return of income was processed u/s. 143 (1) of the Act and the same was accepted. Thereafter, notice u/s. 148 was issued to the assessee on 31.3.2014. Subsequently, notices u/s. 143(2) and 142(1) were issued from time to time wherein response was filed by the assessee. The assessee is engaged in the business of reselling of all types of industrial hardware and engineering goods. During the previous year relevant to the assessment year under consideration the assessee has claimed to have made purchases of Rs. 12,64,048/- from the following parties:- S. Name of party PAN F.Y. Amount No. 1. PARSHVA & CO AFDPC2720E 2008-09 6,011 Page | 2
CN CORPORATION AAAHD0289E 2008-09 97,432 3. U B TRADERS ACHPD5773E 2008-09 3,62,696 4. RUP AADPD1087D 2008-09 2,25,194 INTERNATIONAL 5. VARAH LAXMI AΕΡΡΤ8680Ν 2008-09 65,000 SALES AGENCY 6. SAMBHAV TRADERS AAEPS5747E 2008-09 31,418 7. ARIHANT AAEHP2489Q 2008-09 44,465 ENTERPRISE 8. MRUTI SALES 2008-09 60,435 CORPORATION 9. PRADIP AAJFP2549N 2008-09 63,549 CORPORATION 10. DEEPAK SALES ADBPJ9865G 2008-09 92,168 CORPORATION 11. AMIT TRADING CO BMFPS9038A 2008-09 1,04,648 12. POOJA TRADERS ALIPS2588P 2008-09 1,11,032 TOTAL 12,64,048
It is further alleged that during the course of the assessment proceedings, in order to ascertain the genuineness of purchases made by the assessee, notice u/s. 133(6) was issued to the above parties which were returned unserved by the postal authorities with a remark "left". During the course of assessment proceedings, assessee was asked to produce the parties and also show cause as to why the purchases made from the aforesaid party should not be disallowed. In response, assessee has filed written submissions stating therein that assessee has provided all details to prove the genuineness of the transaction including purchase invoices, delivery challans, certificate from bank stating that payments have been vide a/c payee cheques, bank statements providing details of payment, ledger of the parties for the period under consideration. But the AO found it not tenable and acceptable as the assessee failed to furnish evidence, such as, complete delivery challans, transportation details etc. to substantiate his claim of Purchases from aforesaid party. For these reasons, the AO concluded that the alleged purchases were bogus having been made from those parties which were not available and were not found existing at the addresses given by the assessee. Thus the same were bogus and non- genuine and these purchases made from these parties amounting to Rs. 12,64,048/- is treated as bogus and accordingly disallowed and to the total income of the assessee. Further a separate penalty proceedings u/s 271(1)(c) of the Act were initiated.
5. Aggrieved with the assessment order, the assessee had filed an appeal before Ld. CIT(A) who passed order vide appeal number CIT(A)- 24/IT- 157/110/ITO27(1)(2)/2017-18 dated 07.05.2018 wherein Ld. CIT(A) has partly allowed the appeal of the assessee by making disallowance to the extent 12.5% amounting to Rs.1,58,006/- of the so-called bogus purchases made by the Assessing Officer and the appellant succeeds partially and gets a relief of Rs. 11,06,042/-. Subsequently, show cause notice u/s 271(1)(c) of the Income Tax Act, 1961 on 11.03.2015 was issued by AO for requiring show cause as to why the penalty should not be imposed for furnishing of inaccurate particulars of income. Further, reminder notice was issued on 15.02.2022 for the same. In response to these the assessee has filed his reply and found not acceptable by AO. Further, Ld. CIT(A) has confirmed the disallowance to the extent of 12.5% amounting to Rs. 1,58,006/- by holding that the assessee had furnished inaccurate particulars of income. Therefore, a penalty of Rs. 31,268/- (which is 100% tax sought to be evaded) u/s 271(1)(c) read with section 274 of the Act was hereby imposed, accordingly dismissed the appeal of the assessee.
6. Aggrieved by the order of Ld. CIT (A), the assessee preferred the appeal before us on the following grounds:-
1. On the facts and in circumstances of the case and in law, the Appellate order dated 14th February, 2024, passed by the Ld. Commissioner of Income-Tax (Appeals), NFAC (learned CIT(A)) confirming levy of penalty of Rs. 31,268/-u/s. 271(1)(c) is bad in law, ab initio void and is liable to be quashed.
2. The Ld. CIT(A) overlooked the fact that Appellant had submitted all the documents such as purchase bills, payment made through banking channel, certificate of confirmation from bank for the payments made, corresponding sale invoices to prove that the purchases were genuine. Hence, the levy of penalty u/s.271(1)(c) on estimated additions is illegal and needs to be set aside.
3. Without prejudice to the above, the Ld. CIT(A) failed to appreciate the fact that the particulars submitted by the Appellant at the Assessment proceedings were accepted. Hence, the question of concealment or furnishing of inaccurate particulars does not arise and accordingly there cannot be any levy of penalty. Hence, the order passed by CIT(A) confirming penalty u/s. 271(1)(c) deserves to be quashed.
4. Without prejudice to the above, the Ld. CIT(A) failed to appreciate the fact that Ld. A.O. has erred in holding that the purchases were bogus on the basis of surmises and merely due to non-appearance of the party from whom purchases were made. Hence, the order passed by Ld. CIT(A) is bad in law and should be set aside.
5. Without prejudice to the above, the Ld. CIT(A) failed to appreciate the fact that sales for the year were accepted, hence the purchases ought to have been accepted. Hence, the order passed by the Ld. CIT(A) itself is bad in law and should be set aside.
6. Without prejudice to the above, The Ld. CIT(A) has also overlooked the fact that in the absence of any concrete evidence of concealment of income or furnishing of inaccurate particulars of Income, the purchases were treated as bogus to the extent of 12.5% of the bogus purchases treated by A.O. The order passed by Ld. CIT(A) is without considering the facts and on basis of Assumptions, which is bad in law and deserves to be quashed.
7. Without prejudice to the above, Ld. CIT(A) erred in not adjudicating the validity of the notice issued u/s. 271(1)(c) which was vague as it did not specify that whether there was any concealment of income or furnishing of any inaccurate particulars. Since, the notice itself is defective, the order passed by Ld. CIT(A) is bad in law and should be quashed.
8. Without prejudice to the above, the Ld. CIT(A) erred in confirming the levy of penalty u/s. 271(1)(c) on disallowance to the extent of 12.5% which was made purely on estimation basis. Therefore, the order passed by Ld. CIT(A) upholding the levy of penalty on estimated income without considering the facts and law deserves to be quashed.
9. Without prejudice to the above, the Ld. CIT(A) erred in confirming the penalty ignoring the fact that Ld. A.O. failed to prove that the purchases were bogus and hence the addition made was on adhoc basis. Hence, no penalty u/s. 271(1)(c) not be levied. Accordingly, the order passed by the Ld. CIT(A) is bad in law so the same be set aside.
10. Appellant craves leave to add, alter, modify, delete any of the above grounds of Appeal.
7. From perusal of the above grounds, two questions/issues concisely emerged i.e. i) whether the penalty can be levied on the basis of addition made by the revenue authorities on the basis of estimation of profit out of bogus purchase and ii) whether the question of defective notice can be raised before the Tribunal as having not been agitated before the lower authorities?
8. We have heard Ld. AR appeared on behalf of the assessee who submitted that AO levied penalty on account of bogus purchases without proposing in the notice whether it is concealment of income or furnishing of inaccurate particulars of income. He further submitted that merely making an estimation and enhancing the GP does not lead to concealment or furnishing of inaccurate particulars of income and invoking the jurisdiction of section 271(1)(c) of the Act. In this respect, he relied on various decision of Hon’ble High Courts and Hon’ble Supreme Court and submitted that the levy of penalty imposed by AO and confirmed by Ld. CIT(A) may be deleted. On the other hand, Ld. DR relied on the orders passed by the revenue authorities.
We have considered the rival submissions and perused the material placed on record. From the record, we notice that AO levied penalty u/s 271(1)(c) of the Act on estimation basis without any concrete evidence of actual concealment. Vide order dated 16.03.2022, the penalty has been confirmed to the tune of Rs. 15,51,000/- against the returned income of Rs. 2,87,560/- by making addition of Rs. 12,64,048/- on account of bogus Page | 8 purchase. On appeal, the Ld. CIT(A) has reduced the addition by restricting to 12.5% on estimation of profit basis in the quantum appeal while confirming the penalties, Ld. CIT(A) in impugned order has observed as under:-
The appellant could not bring on record that the addition on account of bogus purchase restricted to 12.5%, was an ad-hoc addition. There was profit element embedded in the said bogus purchase and hence, there was concealment of income by way of bogus purchases. This fact could not have been unearthed, if the Sales Tax Department had not carried out investigation in case of Hawala bill racketeers. Imposing a minimum penalty in such instance acts as deterrence for indulging in such malpractices and this accountability of taxpayers motivates the honest taxpayers and maintains their trust in the system.
In view of above discussion, it is held that penalty order u/s 271(1)(c) of the Act was not at all bad in law and the same is held as valid. Accordingly, in view of the above detailed discussion, it is held that the AO was justified in levying penalty u/s 271(1)(c) of the Act at Rs.31,268/- in this case and the same is hereby confirmed. Ground of appeal Nos. 1 to 9 are dismissed.
The provisions of section 271 (1) (c) of the Act would be applicable only where the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. However, the estimation of higher rate of profits by the AO cannot be termed as either concealment of income or furnishing of inaccurate particulars of income.
11. The assessee has relied on series of decisions by different High Courts as well Coordinate Benches of ITAT, wherein penalty u/s. 271(1)(c) of the Act cannot be levied where addition is made on estimation basis. The following decisions are as under:-
Saimandeep Industries of India vs. ITO NFAC, Delhi- ITA No. 1372/DEL/2022.
2. Bhawralal Tarachandji vs. ITO Ward 17(1)(2), & 1730/Mum/2023 3. Maruti Trading Co., Panisalia, Jagatsinghpur. Vs. ITO, Ward, Paradeep-ITA No. 213/CTK/2023 4. ITO Ward-1(1) vs. Mohd. Umar Timber Mart. -ITA No. 353 & 354/Mum/2023.
Shri Rajeshkumar C Jain vs. National Faceless Assessment Centre, New Delhi-ITA No. 586& 585/M/2023.
Income Tax Officer-22(1)(6) vs. M/s. Broadcasting Services -ITA No. 1312/Mum/2020.
Shri. Deepak Gogri vs. Income Tax Officer Ward- 25(3)(2)-ITA No. 1396/Mum/2017.
CIT vs. Samurai Techno Trading P. Ltd. 389 ITR 357 (Kerala) 9. CIT vs. S. M. Construction [2015] 92 CCH 0099(Mumbai HC) 10. Commissioner of Income Tax vs. Krishi Tyre Retreading & Rubber Industries, 44 taxmann.com 9(Rajasthan) Page | 10
CIT vs. Rajiv Bhatara 360 ITR 121 (P&H) 12. CIT vs. Reliance Petro products P. Ltd. [2010] 322 ITR 158 (SC) 13. Commissioner of Income Tax vs. Aero Traders(P.) Ltd., 322 ITR 316, Delhi HC. 14. CIT vs. Escorts Finance Ltd 328 ITR 44 (Delhi) 15. CIT vs. SSP. Ltd. 328 ITR 643 (P & H.) 16. CIT vs. Suresh Chand Bansal 329 ITR 330(Calcutta) 17. Commissioner of Income Tax, Patiala vs. Sangrur Vanaspati Mills Ltd., 171 Taxman 320 (Punajb & Haryana) 18. Harigopal Singh vs. Commissioner of Income Tax, 125 Taxman 242 (Punjab & Haryana) 19. CIT vs. Ravail Singh 254 ITR 191(P&H) 20. Hari Om Kumar Umesh Chand vs. ITO. 124 Taxman 213 (Agra) 21. CIT vs. Shivnarayan Jamnalal & Co. 232 ITR 311 (Madhya Pradesh-HC) 22. CIT vs. Subhash Trading Co. (1996) 86 Taxman 20(Guj)
12. We also find support from the series of decisions by different High Courts as well Coordinate Benches of ITAT, wherein it was held that when addition is made on estimate basis, no penalty is sustainable. For the sake of clarity, the following decisions are as under:-
i) Commissioner of Income-tax v. Norton Electronics Systems (P) Ltd. (2014) 41 Taxmann.com 280 (Allahabad HC). ii) Asst. Commissioner of Income-tax v. Vision Research Management ('P) Ltd. ITAT Lucknow (2015) 63 Taxmann.com 8 (Lucknow Trib) iii) Prem Chand vs. Asst. Commissioner of Income-tax (2014) 52 Taxmann.com 95 (Chandigarh Trib). iv) Commissioner of Income-tax v. P. H. I. Seeds India Ltd., (2008) 301 ITR 0013—(DeI). v) Dilip N. Shroff v. Joint Commissioner of Income-tax, (2007) 291 ITR 519 (SC).
13. The Hon'ble Karnataka High Court in the case of CIT Vs. Parasamal Babulal Jain, of 2006, order dated 14.09.2011, has held that the penalty u/s. 271(1)(c) is not attracted where addition made on estimate basis. The said order reads as under:
“Penalty cannot be levied on the disallowance of expenses made on estimate basis. If no facts are brought on record that any income has been concealed by the assessee or the assessee has furnished inaccurate particulars. It is because of the disallowance of the expenditure the total amount representing total income is enhanced to the extent of disallowance. Conditions which are to be fulfilled before section 271(1)(c) is attracted do not exist."
After considering the totality of the facts and circumstances and while considering the series of judgments as mentioned above, we are of the view that there is no material to show active concealment of income on the part of the assessee and additions made on estimation by the AO do not call for initiation of penalty. Thus, in our view, the penalty levied by AO and confirmed by Ld. CIT(A) is liable to be deleted. Accordingly, ground raised by the assessee is allowed and question no. 1 is decided accordingly in above terms.
With regard to other issue on account of defective notices, we notice that the Hon’ble Bombay High Court in the case of Veena Estate (P) Ltd. Vs. CIT (2024) 158 taxmann.com 341 (Bom) relied by Ld. DR, has held that ―An alleged defect in notice issued to assessee u/s 271(1)(c) r.w.s. 274, in regard to which assessee had never raised an objection from very inception could not be permitted to raise it in appeal before High Court in absence of any prejudice being caused.” Since the penalty imposed upon the assessee has been deleted by us while deciding the question no. 1, then the decision on question no. 2 framed by us and ground no. 7 regarding defective notice pales into insignificance having been relegated to academic discussion only and having become infructuous, is accordingly dismissed.
In the result, the appeal filed by the assessee is partly allowed.
Since we have already decided the similar appeal filed by the assessee in for AY 2009-10 and the facts of this appeal are exactly similar, therefore the findings in shall mutatis mutandis apply to this appeal also. Resultantly, the appeal filed by the assessee is partly allowed.
In the result, both the appeals filed by the assessee are partly allowed.
Order pronounced in the open court on 10.01.2025