ACIT- 32 (1), MUMBAI vs. VASANT VALLABHDAS SANGANI, MUMBAI

The Brief facts of the case are that, the assessee is engaged in the business of trading in chemicals. The assessee has filed the return of income for the A.Y 2009-10 on 30.09.2009 declaring a total income of Rs. 16,62,600/- and the return of income was processed u/s 143(1) of the Act. The Assessing Officer (A.O.) has received information from DGIT (Inv) Mumbai that as per the Maharashtra Sales Tax Department, the assessee has obtained the bogus purchase bills from four parties who are engaged in providing the accommodation bills aggregating to Rs. 50,24,786/-. The A.O. has reason to believe that there is a income escaping the assessment and issued notice u/s 148 of the Act. The assessee has filed a letter on 15.03.2016 to treat the return of income filed on 30.09.2009 as due compliance. The assessee was provided reasons for reopening of the assessment and subsequently notice u/s 143(2) and 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and filed the requisite details and & 1412/Mum/2020 Vasant Vallabhdas Sangani., Mumbai - 4 - produced the records for verification and the case was discussed.

The A.O on perusal of the financial statements found that the assessee has made purchases from four parties and the contentions of the assessee are that these are genuine purchases. Hence to test check the genuineness of the purchases, the A.O. has issued notice u/s 133(6) of the Act on the parties for furnishing the details and to produce the records for verification. But the notices were returned un-served by the postal authorities with remarks “left” and there was no compliance. Therefore, the assessee was issued show cause notice on 02.12.2016 to produce the details referred at Para 4.1 of the order. The assessee has submitted the details supporting the purchases i.e ledger, bills, bank statements etc. Whereas the A.O has dealt on the facts, evidence, judicial decisions and the percentage of gross profit ratio on sales. Finally, the A.O. relied on the Hon’ble High Court decisions and estimated the profit element of bogus purchases @ 8% and worked out the addition of Rs. 4,01,983/- and assessed the total & 1412/Mum/2020 Vasant Vallabhdas Sangani., Mumbai - 5 - income of Rs. 20,64,580/- and passed the order u/s 143(3) r.w.s 147 of the Act dated 28-12-2016.

Subsequently, the A.O has initiated penalty proceedings u/s 271(1)(c) of the Act. The A.O. found that the assessee has failed to prove the genuineness of the transactions.The A.O. has provided opportunity to submit explanations.The A.O. was not satisfied with the reply of the assessee and relied on the findings in the scrutiny Assessment that the assessee has indulged in obtaining the bogus purchase bills and the A.O. has levied a penalty of Rs.1,30,000/- and passed order u/s 271(1)(c) of the Act dated 27.06.2017.

Aggrieved by the penalty order, the assessee has filed an appeal with the CIT(A), the CIT(A) considered the grounds of appeal, findings of the A.O and the submissions of the assessee and observed that the A.O has made addition of 8% bogus purchases in the scrutiny assessment U/sec143(3) r.w.s Sec147 of the Act. Whereas the A.O has levied the penalty u/sec 271(1)(c) of the Act on estimated income in the penalty proceedings. The CIT(A) dealt on the & 1412/Mum/2020 Vasant Vallabhdas Sangani., Mumbai - 6 - provisions of Sec. 271(1)(c) of the Act and relied on the Coordinate Bench of Hon’ble Tribunal and the Hon’ble High Court decisions and observed that no penalty can be levied on estimated income and directed the A.O to delete the penalty and allowed the assessee appeal. Aggrieved by the order of the CIT(A),the revenue has filed an appeal with the Hon’ble Tribunal.

We heard the Ld.DR submissions and perused the material on record. The sole crux of the disputed issue as envisaged by the Ld.DR that the CIT(A) has erred in deleting the penalty overlooking the transactions of bogus purchases. Whereas, the Ld.CIT(A) considering the facts and circumstances observed that the penalty cannot be levied on & 1412/Mum/2020 Vasant Vallabhdas Sangani., Mumbai - 7 - estimated income. We find that the A.O. has estimated income/gross profit @ 8% on bogus purchases. We are of the opinion that when the addition is on estimated basis, penalty u/s 271(1)(c) of the Act cannot be levied on such adhoc estimated income.The disallowance of purchases on ad-hoc basis does not tantamount to furnishing inaccurate particulars of income under the provisions of Section 271(1) (c) of the Act. The A.O. has not doubted the sales and made 8% disallowance of bogus purchases and we rely on the ratio of the Honorable Jurisdictional High Court in the case of M/s Nikunj Eximp Enterprises Vs Cit (W.P.No 2860 dated 18-06- 2014). Further the assessing officer made an addition based on the information received from Sales tax department Maharashtra. We are of the opinion that once the revenue accepts that penalty is levied on the basis of information from the outside agency/ department, the penalty is not sustained. The Ld.DR could not controvert the findings of the CIT(A) with any new cogent evidences or information. Accordingly, we are not inclined to interfere with the & 1412/Mum/2020 Vasant Vallabhdas Sangani., Mumbai - 8 - order of the Ld.CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue .

As the facts and circumstances in this appeal is identical to for the A.Y.2009-10 except the figures. Therefore, the decision rendered in above paragraphs would apply mutatis mutandis for this appeal also. Accordingly, grounds of appeal of the revenue are dismissed

In the result, the appeals filed by the revenue are dismissed.