ACIT -32(3), MUMBAI, MUMBAI vs. SHRI VIJAY K PATEL , MUMBAI

The appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) - 46, Mumbai, passed u/s. 271(1)(c) and 250 of the Income Tax Act, 1961. At the time of hearing none appeared on behalf of the assessee and we heard the Ld.DR. The revenue has raised the following grounds of appeal. Shri Vijay K. Patel,, Mumbai 1 “"On the facts and in the circumstances of the case, the 14. CIT (A) erred in deleting the penalty levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961, of Rs.3,50,000/- without appreciating the facts that the assessee claimed bogus purchases in its Return of Income and thus furnished inaccurate particulars of income within the meaning of section 271(1)(c) of the Income Tax Act, 1961".

The Brief facts of the case are that, the assessee is engaged in the business of construction works and filed the Return of income for the A.Y 2010-11 on 24.09.2010 disclosing the total income of Rs. 89,84,964/- and the return of income was processed u/s 143(1) of the Act. Subsequently, the case was re- opened u/s 147 of the Act, the A.O. has received the information from the Sale Tax & DGIT (Inv) Wing, Mumbai that the assessee has obtained purchase bills from nine bogus parties aggregating to Rs. Shri Vijay K. Patel,, Mumbai 89,07,477/-.Therefore, the A.O has reason to believe that, the income has escaped assessment and issued notice u/s 148 of the Act. Subsequently, the notice u/s 143(2) and 142(1) of the Act were issued. In compliance the Ld.AR of the assessee appeared from time to time and submitted the details. The A.O considered the material on record and observed that the assessee could not prove the genuineness of the transaction of purchases. Further the A.O has issued notice u/s 133(6) of the Act on the parties, to cross verify the claim of the assessee. But the said notices were returned us-served by the postal authorities. Hence, the A.O dealt on the disputed issue of bogus purchases and made addition by estimation the income/gross profit @12.5% of the bogus purchases which worked out to Rs.11,13,434/-and assessed the total income of Rs.98,98,398/- and passed the order u/s 143(3) r.w.s 147 of the Act on 09.03.2016. Subsequently, the A.O has initiated penalty proceedings u/s 271(1)(c) of the Act. The A.O relied on the findings in the scrutiny assessment and the submissions made by the assessee in the course of hearing. On perusal of the facts and explanations, the A.O was not satisfied with the reply as the assessee Shri Vijay K. Patel,, Mumbai has indulged in obtaining the bogus purchase bills from hawala operators and therefore levied penalty of Rs.3,50,000/-and passed order u/s 271(1)(c) of the Act dated 27.09.2016.

Aggrieved by the penalty order, the assessee has filed an appeal with the CIT(A), the CIT(A) considered the grounds of appeal, findings of the A.O and the submissions of the assessee and observed that the A.O has estimated the gross profit/income @ 12.5% of the bogus purchases in the scrutiny assessment U/sec143(3) r.w.s Sec147 of the Act and further the A.O has levied the penalty u/sec 271(1)(c) of the Act on estimated income. The CIT(A) dealt on the provisions of Sec. 271(1)(c) of the Act and relied on the Coordinate Bench of Hon’ble Tribunal and the Hon’ble High Court decisions and observed that no penalty can be levied on estimated income and directed the A.O to delete the penalty and allowed the assessee’s appeal. Aggrieved by the order of the CIT(A),the revenue has filed an appeal with the Hon’ble Tribunal.

We heard the Ld.DR submissions and perused the material on record. The sole crux of the disputed issue as envisaged by the Ld. DR that the CIT(A) has erred in deleting the penalty overlooking the facts of bogus purchases. Whereas, the Ld.CIT(A) considering the facts and circumstances observed that the penalty cannot be levied on estimated income. We find that the A.O has estimated income/ gross profit on bogus purchases. We are of the opinion that when the addition is made on estimated basis, penalty u/s 271(1)(c) of the Act cannot be levied on such adhoc estimated income. The Ld.DR could not controvert the findings of the CIT(A) with any new cogent evidences or information. Accordingly, we are not inclined to interfere with the order of the Ld.CIT(A) and upheld the same and dismiss the grounds of appeal