ITO 33(1)(7), MUMBAI vs. ROYAL ENTERPRISES , MUMBAI

Briefly the facts are, the assessee, a partnership firm, is stated to be engaged in the business of trading in agricultural chemicals. For the assessment 2 ITAs 1000, 1001 & 1002/Mum/2020 years under appeal, assessee filed its returns of income in regular course under section 139(1) of the Act. Subsequently, based on information received from the Sales-tax department through DGIT (Inv), Mumbai that certain purchases made by the assessee in the relevant assessment years are non–genuine, the assessing officer reopened the assessments under section 147 of the Act. In course of assessment proceedings, the assessing officer called upon the assessee to furnish some documentary evidences to prove the purchases; however, the assessing officer was not satisfied and ultimately held that the purchases are non genuine. But, considering the fact that the assessee has effected the corresponding sales, the assessing officer restricted the addition to the profit element embedded in the alleged non genuine purchases by estimating at 12.5% in all the years. Assessee contested the aforesaid additions before learned Commissioner (Appeals). Following the decision of the Tribunal in assessee’s own case for assessment year 2009-10, though, learned Commissioner (Appeals) approved estimation of profit element at 12.5%; however, he directed the assessing officer to reduce the gross profit already declared by the assessee. Thus, ultimately, the additions on account of alleged non–genuine purchases were restricted to 3.12% in assessment year 2009-10; 4.34% in assessment year 2010-11 and 3.90% in assessment year 2011-12. Based on the additions sustained by learned Commissioner (Appeals), the assessing officer initiated proceedings for imposition of penalty under section 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income and ultimately passed orders imposing penalty in different assessment years as under:- Assessment year 2009-10 Rs. 45,717/- Assessment year 2010-11 Rs.1,20,070/- 3 ITAs 1000, 1001 & 1002/Mum/2020 Assessment year 2011-12 Rs. 52,354/- 3. Against the aforesaid orders of the assessing officer imposing penalty, assessee preferred appeals before learned Commissioner (Appeals). Being convinced with the submissions of the assessee that no offence in terms of section 271(1)(c) of the Act has been committed, learned Commissioner (Appeals) deleted the penalty imposed in all the assessment years under challenge.

We have considered rival submissions and perused materials on record. Undisputedly, based on certain information received from Sales-tax authorities, the assessing officer has treated certain purchases as non genuine. However, he has accepted that the assessee has effected the corresponding sales, meaning thereby, the goods might have been purchased from unverified sources. For this reason alone, the assessing officer, instead of disallowing the entire purchases had restricted the disallowance to the profit element embedded in such purchases by estimating at 12.5%. In appellate proceedings, the disallowance has been further reduced by learned Commissioner (Appeals).

Be that as it may, the facts on record reveal that there is no doubt that the assessee had purchased the goods in dispute. The doubt, if any, is with regard to the source of purchases. Inability of the assessee to prove the source of purchase could be due to various factors. However, that by itself, cannot lead to the conclusion that the assessee has furnished inaccurate particulars of income so as to visit him with penalty under section 271(1)(c) of the Act. More so, when the additions have been made purely on estimate basis. Therefore, for the foretasted reasons, we do not find any infirmity in the decision of learned Commissioner (Appeals) in deleting the penalty imposed under section 271(1)(c) of the Act. Grounds are dismissed.