M/S. STROMAG ENGINEERS LTD,MUMBAI vs. THE DCIT - 11(2)(2),MUMBAI, MUMBAI

These appeals in 1258/Mum/2020 for A.Yrs.2009-10 & 2011-12 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-18, Mumbai in appeal No.CIT(A)-18/IT- 10102/DCIT-11(2)(2)/18-19 dated 14/01/2020 (ld. CIT(A) in short) in the 1258/Mum/2020 M/s. Stromag Engineers Ltd., matter of imposition of penalty u/s.271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as Act).

The only identical issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the levy of penalty u/s.271(1)(c) of the Act in respect of estimated addition made on account of bogus purchases.

We have heard the rival submissions and perused the materials available on record. With the consent of both the parties, the appeal for the A.Y.2009-10 is taken as the lead case and the decision rendered thereon would apply with equal force for A.Y.2011-12 also except with variance in figures. The return of income for the A.Y.2009-10 was filed by the assessee company on 25/09/2009 declaring total income of Rs.4,32,63,690/-. The assessment was framed u/s.143(3) r.w.s. 147 of the Act on 23/02/2015 determining total income of Rs.5,38,92,820/- wherein disallowance on account of bogus purchases of Rs.1,06,29,126/- was made in respect of purchases made by the assessee from M/s. Harshil Ferromet Pvt. Ltd., M/s. Rajkamal Steel, M/s. Anand Impex and M/s. Jindutt Corporation. The ld. AO in the original assessment made disallowance of 100% on value of purchases made from aforesaid parties. The ld. CIT(A) determined the profit element embedded in the value of such purchases at 12% and thereafter directed to allow reduction of 4% towards VAT paid against such bogus purchases. On further appeal to the Tribunal, the Tribunal vide order dated 16/01/2019 restricted the 1258/Mum/2020 M/s. Stromag Engineers Ltd., disallowance to 12.5% of bogus purchases as reduced by gross profit already declared by the assessee on those transactions. This Tribunal order was accepted by both the parties i.e. by the assessee as well as by the Revenue by not preferring further appeal to the High Court. The ld. AO levied penalty u/s.271(1)(c) of the Act pursuant to this Tribunal order since some addition was indeed sustained by the Tribunal on an estimated basis. At the outset, we find that the addition towards bogus purchases has been made only on estimated basis. Hence, no penalty u/s.271(1)(c) on the same would survive in the eyes of law. Moreover, we find that for the A.Y.2009-10, the gross profit shown by the assessee on total transactions is 29.70% which is much more than 12.5% profit estimated by the Tribunal in the quantum proceedings. We find that the Tribunal has directed the ld. AO to adopt 12.5% less gross profit already declared by the assessee, then there would be no addition that could be effectively survive in the transaction. Hence, we hold that it is not a fit case for levy of concealment penalty u/s.271(1)(c) of the Act. Accordingly, the penalty is hereby directed to be deleted for the A.Y.2009- 10.

In the result, both the appeals of the assessee are allowed.