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Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” MUMBAI BEFORE SHRI SHAMIM YAHYA (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) (Assessment Year: 2009-10) DCIT-12(3)(1), M/s Kavis Fashions Room No. 128G, Vs. Private Limited, 1st Floor, Aayakr Bhavan, Plot No. 87, Saki Vihar M.K. Road, Road, Powai, Mumbai - 400020 Mumbai - 400072 PAN No. AAACK9496R (Revenue) (Assessee) Assessee by : Shree Neeraj Kumar, (DR) Revenue by : None Date of Hearing : 08/09/2021 Date of pronouncement : 20/09/2021 ORDER PER RAVISH SOOD, J.M: The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income Tax (Appeals)-21, Mumbai [for short „CIT(A)‟], dated 26.02.2020, which in turn arises from the order passed by the A.O u/s 271(1)(c) of the Income Tax Act, 1961 (for short „Act‟) dated 27.08.2015 for A.Y 2009-10.
The revenue has assailed the impugned order on the following grounds of appeal before us:
1. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) erred in directing to restrict the penalty levied by the AO u/s.271(1)(c) of the Income Tax Act, 1961 of the tax related to 5% of the bogus purchases relying on the decision of the Hon'ble ITAT
2 M/s Kavis Fashions Pvt. Ltd.. Vs. DCIT 12(3)(1) wherein the quantum addition was sustained only to that extent without appreciating the fact that the decision of the ITAT in quantum appeal has not been accepted by the Revenue and an appeal is pending before the Hon'ble Bombay High Court for adjudication.” 2. „Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance on account of bogus purchases at 5% of Rs. 1,59,93,485/as against 12.5% made by the AO without appreciating the fact that assessee failed to establish the genuineness of the purchases and had filed inaccurate particulars of income.” 3. “Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in restricting the penalty on the basis of 5% of bogus purchases without taking into consideration the decision of the Hon'ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs Dy. CIT No. 769 of 2017 dated 16.01.2017 (SC) wherein it was held that addition on the basis of undisclosed income could not be restricted to certain percentage when the entire transaction was found to be bogus?” 4, “The appellant prays that the order of the Ld. CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.” 5. “The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary”.
Briefly stated, the assessee company had e-filed its return of income for A.Y 2009-10 on 26.09.2011, declaring a total income of Rs. 2,74,61,170/-. Subsequently, the case of the assessee was reopened u/s 147 of the Act. Assessment u/s 143(3) r.w.s. 147, dated 09.02.2015 was framed at an income of Rs. 2,99,60,350/- after making an addition of Rs. 19,99,185/- i.e @12.5% of the aggregate value of the bogus purchases of Rs. 1,59,93,485/-.
After culmination of the assessment proceedings, the A.O vide his order passed u/s 271(1)(c) of the Act, dated 27.08.2015 imposed a penalty of Rs. 7 lac i.e @ 100% of tax that was sought to be evaded by the assessee on the impugned addition that was made by the A.O.
On appeal, it was observed by the CIT(A) that the Tribunal while disposing off the assessee's quantum appeal vide its order passed in ITA No.
3 M/s Kavis Fashions Pvt. Ltd.. Vs. DCIT 12(3)(1)
4176/Mum/2017, dated 12.11.2018 had restricted the addition qua the bogus purchases to 5% of the value of the said impugned purchases. Backed by the aforesaid fact, the CIT(A) directed the A.O to restrict the penalty imposed by him u/s 271(1)(c) to the amount of tax that was sought to be evaded by the assessee on the reduced addition i.e 5% of the value of the bogus purchases.
The revenue being aggrieved with the order of CIT(A) has carried the matter in appeal before us. We find that the assessee appellant despite having been intimated about the hearing of the appeal has however failed to appear before us. Accordingly, we are constrained to dispose off the appeal as per Rule 24 of the Appellate Tribunal Rules, 1962 i.e after hearing the revenue respondent and perusing the orders of the lower authorities.
We have heard the Ld. Departmental Representative (for short 'D.R'). On being confronted with the fact that the present appeal filed by the revenue was not maintainable in the backdrop of the CBDT Circular No. 17/2019, dated 08.08.2019 as the „tax effect‟ therein involved was substantially lower than that contemplated in the said circular, it was submitted by the Ld. D.R that the case of the assessee was saved by the exception carved out in Para 10(e) of the CBDT Circular No. 3/2018 (as modified on 20.08.2018) 8. Admittedly, the assessee was intially saddled with a disallowance of an amount of Rs. 19,99,185/- i.e. @12.5% of the value of the impugned bogus purchases of Rs. 1,59,93,485/-. As is discernible from the orders of the lower authorities, the assessee in the course of the assessment proceedings had failed to substantiate the authenticity of the purchase transactions in question to the satisfaction of the A.O. Backed by the aforesaid fact, the A.O had thereafter imposed penalty under section 271(1)(c) of Rs. 7 lacs on the assessee. However, as in the quantum appeal the Tribunal had restricted the addition qua the bogus purchases to 5% of the value of the impugned purchases, therefore, the CIT(A) while disposing off the assesses appeal against the order passed by the A.O u/s 271(1)(c) had directed the A.O to 4 M/s Kavis Fashions Pvt. Ltd.. Vs. DCIT 12(3)(1)
restrict the penalty to the amount of the tax that was sought to be evaded by the assessee on the reduced addition i.e 5% of the value of the bogus purchases.
As observed by us hereinabove, the quantum of penalty under dispute is substantially below the threshold limit of Rs. 50 lacs as had been provided in the latest CBDT circular No. 17/2019, dated 08.08.2019 that contemplates the „tax effect‟ for filing of the appeals by the revenue before the Tribunal. On being confronted with the aforesaid fact, it was submitted by the Ld. D.R that as the present appeal is saved by the exception carved out in Para 10(e) of the CBDT Circular No. 3 of 2018 (as modified on 20.08.2018) thus, the appeal filed by the revenue is maintainable.
Before adverting any further, it would be relevant to cull out the exception carved out in Para 10(e) of the CBDT Circular No. 3/2018 (as modified on 20.08.2018), which reads as under: "10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect:- (a) to (d)…………………………………………………………………………… (e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI / ED / DRI / SFIO / Directorate General of GST Intelligence (DGGI)”.
Admittedly, it is a settled position of law that quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition /upholding of penalty u/s 271(1)(c) of the Act. Adopting the same logic, we are of the considered view that unless a specific exception is provided in the circular w.r.t penalty also, it could by no means be construed that penalty was to be treated at par with the quantum additions. As is discernible from Para 10(e) of the aforesaid CBDT Circular No. 3/2018 (as modified on 20.08.2018),
5 M/s Kavis Fashions Pvt. Ltd.. Vs. DCIT 12(3)(1) the same applied only to additions which were based on information received from external sources. As noticed by us here above, since the levy of penalty by no means could be construed as an addition within the meaning of Para 10(e) of the aforesaid circular, therefore, we do not find any merit in the contentions advanced by the Id. D.R that the aforesaid exception carved out in the CBDT Circular No. 3/2018 (supra) would also take within its realm a penalty imposed under Sec. 271(1)(c) w.r.t additions made by the A.O towards bogus purchases on the basis of information received from Sales Tax Department, i.e. an external agency. We, thus, are of the considered view that as the appeal of the revenue is covered by the CBDT Circular No. 17/2019, dated 08.08.2019, therefore, the same in our considered view is not maintainable. Accordingly, we herein dismiss the appeal of the revenue, for the reason, that the „tax effect‟ therein involved is lower than that contemplated in the aforesaid CBDT Circular fixing the monetary limit of filing of appeals by the revenue before the Tribunal.
Resultantly, the appeal of the revenue is dismissed.
Order pronounced in the open court on 20/09/2021.