ITO 33 (1)(1), MUMBAI vs. SHRI. ASHOK KUMAR SHYMLAL GUPTA, MUMBAI

The revenue has raised the following grounds of appeal:-

1. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the penalty u/s 271 (1) (c) of the Act without appreciating the fact that Assessing Officer has correctly held that the assessee has failed to substantiate the transactions claimed in its return of income thereby evaded taxes to that extent.

The Brief facts of the case are that, the assessee is engaged in the business as reseller of ferrous and non-ferrous metals and filed the return of income for the AY 2010-11 on 10.10.2010 declaring a total income of Rs. 2,11,119/-.Subsequently, the Assessing Officer (AO) has received information from Sales Tax Department and Director General of Investigation, Mumbai (DGIT) (Inv.) that the assessee has obtained bogus purchase bills from 10 Hawala operaters/ entities aggregating to Rs. 2,01,06,486/-.Therefore, the A.O. has reason to believe that, the income has escaped assessment and issued notice u/s 148 of the Act and there was no response to the notice. Further, the A.O. has issued notice u/s 142 (1) of the Act along with questionnaire but no explanations were filed. Since, there was no response to the notice issued u/s 148 and 142 (1) of the Act. The AO

Subsequently, the AO has initiated the penalty proceedings u/s 271 (1) (c) of the Act. The AO relied on the findings in the scrutiny assessment and observed that the assessee has not filed any explanations to the notice in respect of concealment of income and therefore levied penalty of Rs. 59,94,170/- and passed the order u/s 271 (1) (c) dated 26.08.2016. Aggrieved by the order, the assessee has filed an appeal with the Ld.CIT (Appeals). The Ld. CIT (Appeals) considered the Shri Ashok Kumar Shyamlal Gupta - 5 - grounds of appeal, A.O. findings and submissions of the assessee at para 3.1 of the order. The CIT(A) observed that the assessment was completed u/s 144 r.w.s.147 of the Act with addition of 100% of bogus purchases as non-genuine. On appeal against the addition, the appellate authority has reduced the estimation @ 12.5% of bogus purchases. But the A.O. has levied the penalty on entire bogus purchases. The CIT(A) dealt on the provisions of section 271 (1) (c) of the Act and relied on the judicial decisions and observed that no penalty can be levied on the estimated income and directed the assessing to delete the penalty and allowed the appeal of the assessee.

We heard the rival submissions and perused the material on record. The sole crux of the disputed issue as envisaged by the Ld. DR is with respect to CIT(A) deleting the penalty u/s 271(1)(c) of the Act levied by the A.O based on the order U/Sec 144 r.w.s 147 of the Act. Whereas,The Ld.AR has emphasized that against the addition of bogus purchases, the assessee has preferred an appeal before the appellate authorities. The Ld. CIT(A) has restricted the addition to the extent of 12.5% of the bogus purchases and was accepted and the penalty cannot be levied on estimated income. We found strength in the submissions of the Ld. AR. The A.O has made total disallowance of bogus purchases but accepted the sales in the books of accounts and the Ld.CIT(A) in quantum appeal has estimated the income of the assessee on purchases. We are of the opinion that, where the addition is sustained on the estimated basis, no penalty u/s 271(1)(c) of the Act can be levied on such adhoc

In the result, the appeal filed by the revenue is dismissed.