ACIT, CIRCLE-9(3)(1), MUMBAI vs. M/S. DIGICABLE NETWORK(INDIA) LTD., MUMBAI

The only issue in this appeal of Revenue is against the order of CIT(A) deleting the penalty levied by the Assessing Officer under section 271(1)(c) of the Act on account of bogus purchases

We have heard the learned Sr. DR and gone through the facts and circumstances of the case. We noted that the Assessing Officer during the course of assessment proceedings noted that he has received information from Sales Tax authority that the assessee had shown bogus purchases/ hawala transactions from M/s PK Trading Company to the extent of Rs. 10,12,781/-. According to the Assessing Officer the assessee failed to provide the details and evidence of physical transportation delivery of goods and also failed to provide quantity wise tally of purchases and consumption of raw materials and therefore, treated the purchases as bogus. It was noted by the Assessing Officer that even the sales tax authorities have held M/s PK trading Company as hawala party. The Assessing Officer added the entire purchases of Rs. 10,12,781/- to the returned income of the assessee. The addition was not challenged by the assessee before any of the authorities.

The CIT(A) deleted the penalty by relying on ITAT’s decision of Mumbai Benches in the case of Ajay Loknath Lohia Vs. ITO in ITA No. 2998/Mum/2017. The CIT(A) deleted the penalty by observing as under:-

“4.1.2 During the appellate proceedings, the appellant has filed the copy of the Audited Annual Accounts along with submitted all asset purchased invoices, delivery challans, bank statement and other supporting documents. The appellant also submitted that there is neither concealment of income as all the documents evidencing the genuineness of the transactions were submitted to the Ld. AO nor the appellant company has furnished inaccurate particulars of income as the appellant company has truly disclosed the purchase transactions & capitalization of Fixed 4.1.3 Reliance is placed on the decision of the Hon'ble Mumbai ITAT in Ajay Loknath Lohia vs Ito ITA 2998/MUM/2017, Mumbai wherein it was held that The AO never disbelieved information filed by the assessee, but he proceeded on the basis of information received from sales-tax department to make additions. The AO has made such addition on adhoc basis by estimating gross profit on alleged bogus purchases. Therefore, disallowance of purchases on adhoc basis does not tantamount to willful furnishing inaccurate particulars of income within the meaning of section 271(1)('c) of the Income-tax Act, 1961.