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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, & SHRI S. RIFAUR RAHMAN
The present appeal has been filed by the Revenue challenging the impugned order dated 21st June 2019, passed by the learned CIT(A)–26, Mumbai, deleting the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") imposed by the Assessing Officer which pertaining to the assessment year 2010–11.
2 Smt. Sheeja Varghese
When the appeal was called for hearing neither the assessee nor any of her authorized representatives was present on behalf of the respondent assessee to represent the case. There is no application for adjournment of hearing either. Consequently, we deem it fit and appropriate to proceed to dispose off the appeal ex–parte qua the assessee after hearing the learned Departmental Representative and on the basis of material available on record.
Facts in brief:– In the present case, the assessee is an individual and is the proprietor of M/s. Nikil Sales Corporation, engaged in the business activity of trading of ceramics. The assessee filed its return of income on 24th September 2010, declaring total income of ` 2,47,668. Since the gross receipt during the year under consideration exceeded the statutory limits imposed under the provisions of section 44AB of the Act, hence audit report in Frm no.3CB and 3CD has been duly filed. The assessee has also shown income from the said business activity. Apart from this, there is an income from other sources as well. The Assessing Officer processed her return of income under section 143(1) of the Act. Meanwhile, the Assessing Officer received information from the Sales Tax Department, Mumbai, through DGIT (Inv.), Mumbai, regarding suspicious parties who are only providing accommodation entries without doing actual business and 3 Smt. Sheeja Varghese the assessee had entered into hawala transactions for purchases amounting to ` 22,65,857 from the following parties:–
Sl. Name of the Party Amount (`) no. 8,21,610 1. M/s. Deep Enterprises 2. M/s. Samarth Enterpirises 9,32,458 3. M/s. Abhay Enterprises 5,11,789 Total:– 22,65,857
Therefore, the case was re–opened under section 147 of the Act and notices issued accordingly which were served upon the assessee. The Assessing Officer, vide notice dated 1st July 2015, issued notice under section 142(1) of the Act and asked the assessee to substantiate the purchases made from the above parties along with evidence. In response, the assessee furnished her reply vice letter dated 28th July 2015, accompanied with tax invoices of the above named parties in the books of the assessee and copy of purchase bills from the aforesaid parties. The Assessing Officer considered the reply of the assessee along with the material furnished by the assessee and came to the conclusion that the contention of the assessee that she had made purchases from the alleged parties is not acceptable. He came to the conclusion that the assessee has not purchased any goods from these parties and treated it as fictitious purchases by cheque and received back the same amount in cash. He held that the assessee has 4 Smt. Sheeja Varghese also paid the small amount in cash to such parties as commission for providing such accommodation entries which is not recorded in the books of account of the assessee and hence the assessee failed to prove the genuineness of the purchases from such hawala parties. He also observed that the books of account maintained by the assessee do not reflect the true and genuine picture of the financial states of the assessee. The Assessing Officer, based on the information received from the Sales Tax Department and the details submitted by the assessee came to the conclusion that these transactions were shown in order to inflate the expenses and bring down the profitability thereby avoiding the payment of tax and hence, he concluded that an amount of ` 22,65,857, as accounted in the books of account of the assessee through fictitious invoices in the name of three bogus parties represents unexplained expenditure in terms of section 69C of the Act, which was added to the total income of the assessee. Consequently, penalty proceedings were also initiated under section 271(1)(c) of the Act for concealment of income and furnishing of inaccurate particulars of income vide order dated 18th April 2016, imposing 100% penalty sought to be evaded which worked out to ` 6,68,770. The assessee being aggrieved filed appeal before the first appellate authority for contesting imposition of penalty under section 271(1)(c) of the Act levied on account of addition made for bogus purchase under section 69C of the Act.
5 Smt. Sheeja Varghese
The learned CIT(A) deleted the penalty imposed by the Assessing Officer u/s 271(1)(c) of the Act by following plethora of decision of the Co–ordinate Bench of this Tribunal. The relevant observations of the learned CIT(A) deleting the penalty are as follows:–
“6. I have gone through the order levying penalty passed by the AG and the statement of facts. The AG had added Rs. 22,65,8571- being entire bogus purchases to the total income of the assessee. Subsequently, the AO passed the penalty order u/s 271(1)(c) of the Act on 18-04-2016 for furnishing inaccurate particulars of income and also for concealing the particulars of income by way of bogus claim of expenditure, levying a minimum leviable penalty of Rs.6,68,770/- being 100% of the tax sought to be evaded. 6.1 The appellant has contended that the purchases made by the appellant are genuine and supported by valid documents. The appellant has also contended that it has not concealed any particulars of income nor has it furnished inaccurate particulars of income. The appellant has also contended that purchase was disallowed on ad-hoc basis which also suggested that concerned purchases were not bogus in nature. To buttress its claim, the appellant has relied on a number of case laws as mentioned in its submission. 6.2 The AG had basically estimated the profit on alleged bogus purchases being the profit element calculated by adopting peak credit and penalty u/s. 271(1)(c) of the Act was levied by the AO on such estimated profit. There is a plethora of court decisions which say that where additions are made on estimation, no penalty u/s. 271(1)(c) is leviable, there being no concealment of particulars of income or furnishing of inaccurate particulars of income. In the present case, the purchase had been duly shown by the appellant in its books of accounts but it could not produce the party from whom the purchase had been made. It is not the case of the AO that the impugned purchases have been proved to be bogus conclusively and there were no corresponding sales. In a recent case before the Allahabad High Court in the case of Naresh Chand Agaiwal vs. CIT, 357 ITR 0514 (Ali), it has been held that: 12. In the instant case, nothing was concealed by the assessee. It was the AO who has rejected the books of account in the second round and applied the 8 percent net profit rate prescribed under 6 Smt. Sheeja Varghese
Section 44 AD. In the instant case, the turnover is more than 40 lacs, so Section 44AD is not applicable, nonetheless the A.O. has inspired with the provision of Section 44AD and made the addition by estimating the net profit rate at 8 percent. Rejection of the books of account allowed the A.O. to make the addition on estimate basis. When the addition is made on estimate basis, no penalty under Section 271(1)(c) of the Income Tax Act, can be imposed as per the ratio laid down in the case of C.I. T. vs. Arjun Prasad Ajit Kumar, (2008) 214 CTR (All) 355, where it was observed that: "Appeal (High Court) -Substantial question of law- Penalty under section 271 (1)(c) CIT (A) deleted penalty under section 271(1)(c) on the ground that there being nothing on record that assessee's explanation lacked bona fides, penalty under section 271(1)c) could not be imposed on the basis of estimating sales and making addition by applying net profit rate- Same was rightly sustained by Tribunal and no substantial question of law arises"
Considered the submissions of the learned Departmental Authorities and perused the material on record. As it appears, the Assessing Officer imposed penalty under section 271(1)(c) of the Act on ad–hoc basis without adducing any evidence on record for concealment of income. Penalty under section 271(1)(c) of the Act is liable to be imposed only where the assessee has concealed its particulars of income or furnished inaccurate particulars. Action of making addition on ad–hoc basis does not result into imposition of penalty u/s 271(1)(c) of the Act and hence cannot be termed as either concealment or furnishing of inaccurate particulars of income. We find support from the series of decisions by different High Courts as well the decision of the Co–ordinate Benches of the Tribunal, wherein it was held that when addition is made on estimate basis, penalty is not 7 Smt. Sheeja Varghese sustainable in the eyes of law. In support of this contention, following case laws are relied upon:-
i) CIT v/s Norton Electronics Systems (P) Ltd. [2014] 41 taxmann.com 280 (Allahabad HC); ii) ACIT v/s Vision Research Management (P) Ltd., [2015] 63 taxmann.com 8 (Lucknow) (Trib.); iii) Prem Chand v/s ACIT, [2014] 52 taxmann.com 95 (Chandigarh) (Trib.); iv) CIT v/s PHI Seeds India Ltd., [2008] 301 ITR 0013 (Del); and v) Dilip N. Shroff v/s JCIT [2007] 291 ITR 519 (SC).
The learned Departmental Authorities has not brought any cogent material to prove otherwise warranting interference at the instance of the Revenue. In this view of the matter, we are of the considered view that the learned CIT(A) was indeed justified in deleting the penalty, as there was no concealment of income on the part of the assessee have been proved by the Revenue and additions made on estimation by the Assessing Officer do not call for initiation of penalty. Consequently, we uphold the order passed by the learned CIT(A) by dismissing the grounds of appeal raised by the Revenue.