DY CIT - 32(1), MUMBAI vs. NARESH TRADERS & SURESH TRADERS (JOINT VENTURE), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

2. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in appreciating the fact that the cat of the assessee clearly falls within the ambit of provisions of Explanation-1 to section 271(1)(c) of the Act as the assessee has failed to offer an explanation or which was found by the AO to be false.”

3. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the penalty levied by the AO u/s.271(1)(c) of the I.T. Act, 1961, of Rs.27,00,000/-without appreciating the fact that the assessee claimed bogus purchases in its return of Income thereby making himself liable for penalty u/s. 271(1)(c) of the Act”

4. “ Whether on the facts and in the circumstances of the case, the Hon‟ble ITAT is requested to entertain this appeal though the tax effect is below the monetary limit prescribed in the CBDT Circular No. 17/2019 dtd. 08.08.2019 r.w. Circular No.3/2018 dtd.11.07.2018 as amended on 20.08.2018 as the case falls in the exception provided in para 10(e) of the said circular in as much as the addition is based on the information received from external sources in the nature of law enforcement agencies, namely, Sales Tax Authorities.”

5. “The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the Assessing Officer be restored.”

6. “The appellant craves leave to amend or to alter any ground or add a new ground which may be necessary.”

3. The brief facts of the case are that the assessee filed its return of income on 30.09.2009 declaring total income to the tune of Rs.1,05,58,813/-. Thereafter, the case of the assessee was reopened on the basis of information received from the DGIT(Inv.), Mumbai in which it was conveyed that the assessee has taken the accommodation entry of purchase to the tune of Rs.6,47,85,831/- from the parties who were declared as suspicious by the Sales Tax Department. Thereafter, the assessment was completed u/s 143(3) r.w.s. 147 of the Act on 11.03.2015 determining the assessable income at Rs.1,89,57,040/-. The difference between the return income and assessed the income was due to addition u/s 69C of the Act made at Rs.80,98,229/-. The penalty was initiated and after the reply of the assessee, the penalty to the tune of Rs.27,00,000/- was levied. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who deleted the penalty, therefore, the revenue has filed the present appeal before us.

ISSUE Nos. 1 to 4 4. Issue nos. 1 to 4 is in connection with the deletion of penalty by CIT(A) in view of the provisions u/s 271(1)(c) of the Act. Before going further, we deem it necessary to advert the finding of the CIT(A) on record:

“3.3. I have gone through the assessment order, penalty order passed by the AO and the submission made by the appellant. In this case the assessment was completed the adding Rs.80,98,229/- being 12.5% of bogus purchases as non-genuine, purchases. In this case, the AO for want of minor documents like lorry transportation receipts, delivery challans added certain percentage of purchases on estimation. The AO made only presumption Based on the information received and ignored the primary documents and book entries made by the AO for the purchases. It is observed that addition was made in the assessment order even where the payments. were made‟ through-banking channels and the source for the purchases was on the record. It is noted that the addition made by the AO Was an adhoc addition on the assumption that purchases were made in grey market instead of the bills produced. An assumption however believable it is, it cannot take place of a fact. Explanation 1 placed u/s 271(1)(c), makes it clear that, where penalty relates to computation of total income, the amount added or disallowed in computing the total income, be deemed to represent the concealed income only if the assessee fails to offer an explanation, or the explanation offered by the assessee is found to be false or the assessee offers an explanation, which he is not able to substantiate. In the present case, the assessee offered an explanation, which the AO did not accept but not found it to be false.

3.4 It is noted that the addition made by the AO was an adhoc addition on the assumption that purchases were made in grey market instead of the bills produced. Assessment proceedings and penalty proceedings are separate. Reason good enough for addition may not be sufficient enough for imposition of penalty u/s 271(1)(c). In this case furnishing of inaccurate particulars has been not been conclusively established by the Assessing Officer, therefore, in such a case penalty u/s 271(1)(c) cannot be levied. In support of this proposition, reliance is placed on the decision of jurisdictional ITAT in the case of Earthmoving Equipment Service Corporation v. Dy. CIT, 22(2), Mumbai [2017] 84 taxmann.com 51 ( Mumbai - Trib.) wherein, on similar set of facts, it has been held that penalty u/s 271(1)(c) cannot be levied. Further, in the case of M/s Chempure vs. ITO (ITA No's 451, 452 & 453/M/2006), the income was estimated at 25% of alleged bogus purchases and penalty u/s 271(1)(c) was levied on estimated income, the ITA, Mumbai has held that penalty u/s 271(1)(c) cannot be levied on adhoc addition. The facts of the instant case are exactly identical to the facts of M/s. Chempure vs ITO (supra).

3.5 Reliance is placed on the decision on Hon‟ble Punjab & Haryana High Court in the case of Harigopal Singh V CIT (258 ITR 85) wherein it was held as under:-

In order to attract clause (c) of section 271(1), it is necessary that there must be concealment by the assessee of the particulars of his income or if he furnishes inaccurate particulars of such income. What is to be seen is whether the assessee in the present case had concealed his income as held by the Assessing Officer and the Tribunal. He had not maintained any accounts and he filed his return of income on estimate basis. The Assessing Officer did not agree with the estimate of the assessee and brought his income to tax by increasing it to Rs.2,07,500/-. This, too, was on estimate basis. The Tribunal agreed that the income of the assessee had to be assessed on an estimate of the turnover but was of the view that the estimate as made by the Assessing Officer was highly excessive and it fixed the total income of the assessee at Rs.1,50,000/- for the year under appeal. It is, thus, clear that there was a difference of opinion as regards the estimate of the income of the assessee. Since the Assessing Officer and the Tribunal adopted different estimates in assessing the income of the assessee, it cannot be said that the assessee had „concealed the particulars of his income‟ so as {o attract clause (c) of section 271(1).

3.6 Reliance is also placed on the decision of Hon'ble Mumbai in case of Sushil Chhatrabhuj) Raheja v. ACIT [ITA No. 1375/Mum/2017] dated 29.09.2017 wherein on the estimation of profits, the Hon'ble Tribunal has deleted penalty u/s 271(1}(c) of the Act. Relevant extracts are reproduced as under:

We have considered the rival submission of the parties and have gone through the orders of authorities below. The perusal of assessment order reveals that the assessing officer, while passing the assessment order under section 143(3) rws 147, made the addition on the basis of estimation. The assessing officer made addition @ 25% of the alleged bogus purchases. The revenue has not disputed that additions were made merely on the basis of estimation. It is settled law that no penalties is liveable under section 271(1){c) for ad hoc/estimated additions. Similar view has been taken in the various decisions cited by learned AR for the assessee. Accordingly, we are of the opinion that this is not a fit case for levy of penalty. In the result the grounds of appeal raised by the assessee is allowed.

3.7 The facts on record where income has been estimated do not indicate any deliberate attempt by the assessee to conceal or furnish inaccurate particulars of income. In view 6f*the above facts and case laws, penalty levied is held not to be justified. The AO is therefore directed to delete the penalty levied u/s 271(1)(c) of the Act. Accordingly, the ground raised in the appeal is allowed.”

Punjab & Harayana High Court in the case of Harigopal Singh Vs. CIT (258 ITR 85) and in view of the decision of ITAT Mumbai Bench in the case of Sushil Chhatrabhuj Raheja Vs. ACIT (ITA. No.1375/Mum/2017) dated 29.09.2017. No penalty is leviable where the addition has been raised on the basis of estimation. The CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfered with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) in question and decide this issue in favour of the assessee against the revenue.