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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI RAVISH SOOD
ORDER PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the CIT(A)-25, dated 03.11.2016, which in turn arises from the order passed by the A.O under Sec.271(1)(c) of the Income Tax Act, 1961 (for short „Act‟), dated 29.09.2016 for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us:
“Being aggrieved by the orders of the Income Tax Officer- 271(2)(5) Mumbai, and learned Commissioner of Income-tax (Appeal) - 25, Mumbai this appeal petition is filed on the following amongst other grounds of appeal
, which it is prayed may be considered without prejudice to one another.
1. On the facts, and in circumstances of the case, and in law, the Assessing Officer erred in imposing penalty under section 271(1)(c) of the Income-tax Act 1961 without appreciating that the notice initiating penalty under section 274 read with section 271(1)(c) was bad in law.
2. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in imposing penalty under section 271(1)(c) of the Income-tax Act 1961 amounting to Rs.76,000 being 100% of tax sought to be evaded on alleged concealed income on account of disallowing purchases amounting to Parin Ashok Tolia Vs. ITO -27(2)(5) 2
Rs.285,363/- without appreciating that the addition of alleged non-genuine purchases was made on a difference of opinion: and there was neither concealment of income nor filing of inaccurate of income, as the Appellant had furnished all material particulars in support of its claim of purchases further supported by the order of MVAT Department accepting the same purchases which the Assessing Officer treated as non genuine. Your Appellant craves leave to add to, amend, alter, modify, and I or delete any of the above grounds of appeal at or before final disposal of appeal.”
Briefly stated, the assessee who is engaged in the business of manufacturing of carbide tools, engineering goods etc. had filed its return of income for A.Y. 2010- 11 on 26.08.2010, declaring its total income at Rs.3,79,780/-. The return of income filed by the assessee was processed as such under Sec.143(1) of the Act. Subsequently, on the basis of information received from the Sales Tax Department, duly forwarded by the DGIT(Inv.), Mumbai, that the assessee had taken accommodation bills for purchases from some bogus biller, his case was reopened under Sec. 147 of the Act.
During the course of the assessment proceedings the A.O in order to verify the genuineness and veracity of the purchases of Rs.2,85,363/- claimed by the assessee to have been made from the aforementioned hawala party, viz. Arihant Enterprise, issued notice under Sec. 133(6) of the Act. However, the aforesaid notice remained unserved and was returned by the postal authorities with the remarks “left” or “not known”. Also, the attempt on the part of the A.O to serve the aforesaid notice on the said supplier parties through his inspector was also of no avail as the party could not be traced at the address given by the assessee. In the backdrop of the aforesaid facts the A.O directed the assessee to produce the aforementioned party and also to provide its latest address along with the details of goods purchased, copy of bills raised by the said party, freight invoices, octroi and transportation bills in respect of delivery of material from the said party and details of corresponding sales. As the assessee failed to furnish the documentary evidence substantiating receipt of material claimed to have been purchased from the aforementioned party, and also, could neither produce the party for necessary verification nor link the consumption of the materials with his production activity, the A.O holding a conviction that the assessee had booked bogus purchases disallowed the entire amount of such purchases and added back the same to the returned income of the assessee.
Parin Ashok Tolia Vs. ITO -27(2)(5) 3
After the culmination of the assessment proceedings the A.O called upon the assessee to show cause as to why penalty under Sec.271(1)(c) for concealment and filing of inaccurate particulars of income may not be imposed on him. As the reply filed by the assessee did not find favour with the A.O, therefore, he imposed a penalty of Rs.76,000/- vide his order passed under Sec. 271(1)(c), dated 29.09.2016.
Aggrieved, the assessee assailed the order passed by the A.O under Sec.271(1)(c) in appeal before the CIT(A). However, the CIT(A) not being inclined to accept the claim of the assessee that no penalty was liable to be imposed on him, upheld the order passed by the A.O and dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) confirming the penalty imposed by the A.O under Sec. 271(1)(c) has carried the matter in appeal before us.
During the course of hearing of the appeal as the assessee appellant had failed to put forth an appearance, therefore, we are constrained to proceed with and dispose off the appeal as per Rule 25 of the Appellate Tribune Rules, 1963, i.e after hearing the respondent revenue and perusing the orders of the lower authorities. The ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee had failed to substantiate its claim of having purchased the goods under consideration, the A.O, thus, had rightly imposed the penalty under Sec. 271(1)(c).
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, it is a matter of fact borne from the record that the assessee in the course of the assessment proceedings had failed to substantiate the genuineness and veracity of its claim of having made purchases of Rs.2,85,363/- from the aforementioned party, viz. M/s Arihant Enterprise. As the assessee had failed to discharge the onus and, thus, could not prove the authenticity of the aforesaid purchase transaction, the A.O added the entire amount of the impugned purchases as bogus purchases booked by the assessee. On a perusal of the orders of the lower authorities, we find that the assessee in order to substantiate the genuineness of the purchases claimed to have been made from the aforementioned party had produced the invoices, and also,
Parin Ashok Tolia Vs. ITO -27(2)(5) 4 drawn support from the fact that the payment of the purchase consideration was made to the said supplier party by account payee cheque. Also, we find, that though the assessee had produced the stock register wherein the aforesaid purchase transaction was recorded, but, the same did not inspire any confidence with the A.O as regards the veracity of the said purchase transaction. Admittedly, it is a matter of fact borne from the record that the assessee not only failed to substantiate its aforesaid purchase transaction on the basis of supporting documentary evidence, but also, despite specific directions had failed to produce the supplier party for necessary examination before the A.O. In fact, the assessee could not even place on record the new address of the aforesaid supplier party. Also, as observed by the A.O, the assessee failed to establish to the satisfaction of the A.O that the material corresponding to the bogus purchases was actually used in the production activity. Be that as it may, it remains as a matter of fact that the A.O despite the aforesaid infirmities had not rejected the books of accounts of the assessee.
As observed by the A.O in his order passed under Sec.271(1)(c), dated 29.09.2016, the details filed by the assessee in his attempt to substantiate the genuineness of the impugned purchases were in the nature of secondary evidence, and the same not being primary evidence, thus, did not prove its claim of having purchased the goods from the aforementioned party. In our considered view, for the reason that the assessee could not substantiate the genuineness of the purchases claimed to have been made from the aforementioned party to the satisfaction of the A.O, the same, for the said reason was disallowed by him. However, we cannot remain oblivious of the fact that the A.O had at no stage rejected the book results of the assessee and had in fact accepted its sales. We are of a strong conviction that though the failure on the part of the assessee to substantiate the authenticity of the aforesaid purchase transaction would justify an addition/disallowance to the said extent, however, the same by no means would on such standalone basis justify levy of penalty under Sec. 271(1)(c) of the Act. In our considered view, if an assessee gives an explanation which is unproved but not disproved i.e though the same is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee‟s case is false, then, no penalty under Sec.271(1)(c) can justifiably be imposed. Our aforesaid view is supported by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Upendra Vs. Mithani [ITA (L) No.1860 of Parin Ashok Tolia Vs. ITO -27(2)(5) 5 2009, dated 05.08.2009]. Accordingly, in the backdrop of our aforesaid deliberations, we are of a strong conviction that in the absence of documentary evidence supporting the genuineness of the purchases claimed by the assessee to have been made from the aforementioned party, the same, though could have been disallowed, however, on the said standalone basis penalty under Sec.271(1)(c) could not have been validly imposed. Not finding ourselves to be in agreement with the view taken by the lower authorities, we, thus vacate the penalty of Rs.76,000/- imposed by the A.O under Sec.271(1)(c) of the Act.
The appeal filed by the assessee is allowed.
Order pronounced in the open court on 18.01.2021