ACIT 13 (3)(2), MUMBAI vs. M/S VAKO SALES PVT LTD., MUMBAI

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ITA 6253/MUM/2019Status: DisposedITAT Mumbai02 June 2021AY 2009-103 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s order, stating that penalty under Section 271(1)(c) is not justified when the disallowance is estimated and the assessee's conduct is not contumacious. The revenue's plea regarding information from the sales tax department was also rejected.

What were the facts?

The Assessing Officer disallowed a portion of purchases as 'bogus' due to the non-production of suppliers, despite purchase vouchers and banking channel payments. The CIT(A) restricted the disallowance to 12% of purchases and deleted the penalty under Section 271(1)(c).

What were the issues?

Whether penalty under Section 271(1)(c) can be levied when disallowance is based on estimation due to non-production of suppliers, and if the revenue's appeal falls under an exception to CBDT circulars.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “F” Bench, Mumbai

For Respondent: Ms. Usha Gaikwad
Hearing: 27.05.2021Pronounced: 02.06.2021

Heard together (2 matters)

I.T.A. No. 6253/Mum/2019
I.T.A. No. 6254/Mum/2019

Read from the judgment's own cause title. This page is filed under one of them.

O R D E R Per Shamim Yahya (AM) :- These are appeals by the revenue against respective orders of learned CIT(A) wherein following penalty under section 271(1)(c) has been deleted :-

Assessment year Amount of penalty (Rs.) 2009-10 6,00,000 2010-11 5,00,000

2.

Brief facts of the case leading to the levy of penalty are that the assessing officer in these cases made disallowance on account of bogus purchases. Assessee has supplied the purchase vouchers and the payment where shown to have been made by banking channel. However drawing adverse inference for the non-production of the suppliers the assessing officer made the disallowance. He did not doubt the sales. The learned CIT(A) restricted the disallowance to 12%. Penalty under section 271(1)(c) of the Act was also levied. Ld CIT(A) deleted the penalty holding as under :- “I have considered the facts of the case and submissions made by the appellant. Crux of the matter is that the AO made an addition of Rs. 16,54,800/- in respect of bogus purchases in respect of a party who was not 2 M/s. Vako Sales Pvt. Ltd.

available for "verification. The Appellant went in appeal and the CIT(A), Mumbai who examined the issue and accepted appellant's submissions that purchases were made and goods received which were utilized for the manufacture of final products and hence restricted the additions of Rs. 16,54,800/- representing 12% of the purchases. The AO revived the penalty proceedings u/s. 271(1)(c) of the Act and issued a show cause notice to the appellant and appellant submitted that, the only issue in the case was that of the identity of the sellers of these goods to the appellant from whom purchases of Rs. 1,21,35,196/- were made and the gross and net profit percentages from year to year had increased over the last 10 years. Prima facie, it appears from the records as well as CIT(A)'s orders for AY.2009-10, 2010-11 and 2011-12 that, only issue is that of the price paid either in cash or by a bearer cheque for the purchases effected by the appellant during the year. The CIT(A) has also mentioned that due to non verification of the identity of the seller of goods, the appellant may have saved on VAT which was 4% plus extra profits which may have bee embedded the price per unit claimed in the purchases and hence estimated the profits saved at 12% of the cost of purchases debited to the P&L account. Thus purchases were not in doubt but the quantum of price paid for the same was I doubt and estimated at 12% of the purchase cost. Thus mens rea in the case of the appellant was not established and hence section 271(1)(c) of the Act were not proved beyond doubt and hence levy of penalty u/s.271(1)(c) of the Act was not justified in the appellant's case. In short, appellant's appeal is allowed.

3.

Against this order revenue is in appeal before us.

4.

We have heard Ld DR and perused the records. As clear from the facts recorded above the disallowance has been sustained on an estimated basis on account of the nonproduction of suppliers before the assessing officer. The purchase vouchers were duly produced and the payments were through banking channel. In these backgrounds in our considered opinion assessee cannot be visited with the rig ours of penalty under section 271(1)(c) of the Act. As a matter of fact on many occasions on similar circumstances in quantum proceedings the disallowance itself has been deleted. In our considered opinion on the facts and circumstances of the case assessee cannot be said to have been guilty of concealment or furnishing of inaccurate particulars of income. In this regard we draw support from the decision of a larger bench of the honourable Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Orissa (83 ITR 26) where in it was held that the authority may no t levy the penalty if the conduct of the assessee is not found to be contumacious.

3 M/s. Vako Sales Pvt. Ltd.

5.

We further note that tax effect in this case is below the limit fixed by CBDT for filing appeals before ITAT. The revenue has tried to make out a case that since the addition was made pursuant to information from sales tax department, this penalty appeal falls in the exception carved out in the CBDT circular regarding appeals arising out of additions made pursuant to information from outside agencies. We are of the opinion that this plea is not tenable inasmuch as once revenue accepts that penalty is levied on outside agency information, the penalty levied will have no legs to stand.

6.

In the background of aforesaid discussion and precedent we uphold the order's of Ld CITA and delete the levy of penalty.

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