ITO 25 (3)(3), MUMBAI vs. RAJAN NANALAL SHANGHVI, MUMBAI

Brief facts of the case leading to the levy of penalty are that the Assessing Officer in this case made disallowance of 15% 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 A.O. disallowed 15% of the bogus purchases. However, the A.O. did not doubt the sales. The ld. CIT(A) reduced the addition. ITAT reduced the disallowance to 5%. Penalty u/s. 271(1)(c) was also levied. The ld. CIT(A) deleted the penalty by holding that penalty on extended addition is not sustainable. He relied on several case laws in this regard.

We have heard both the parties and perused the records. As clear from the facts recorded above, the disallowance has been made on an estimated basis on account of the non production of suppliers before the assessing officer. The purchase vouchers were duly produced and the payments were through banking channel. In this background, in our considered opinion, the assessee cannot be visited with the rigors of penalty u/s. 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, the 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 Hon’ble Supreme Court comprising of three of their Lordships in the case of Hindustan Steel Ltd. vs. State of Orissa [1972] 83 ITR 26 (SC), wherein it was held that the authority may not levy the penalty, if the conduct of the assessee is not found to be contumacious.

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. In the background of aforesaid discussion and precedent, we uphold the order's of ld. CIT(A) and delete the levy of penalty.

In the result, the Revenues 's appeal is dismissed. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board on 09.03.2021. Sd/- Sd/- (Ram Lal Negi) (Shamim Yahya) Judicial Member Accountant Member Mumbai; Dated : 09.03.2021 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,