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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
Appellant by: Shri Rahul Hakani, A.R Respondent by: Shri Uodal Raj Singh, D.R Date of Hearing: 05.10.2020 Date of Pronouncement: 06.10.2020 O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-49, Mumbai, dated 08.07.2019, which in turn arises from the order passed by the AO under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short „Act‟), dated 31.03.2018 for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1. The Ld. CIT(A) erred in confirming penalty u/s 271(1)(c) levied by AO on addition of alleged bogus purchases without appreciating that Assessee had neither concealed any income nor furnished inaccurate particulars of income as assessee had made all bonafide disclosures and submitted all the details with respect to alleged bogus purchases and further the addition was sustained on estimate basis and hence, penalty u/s 271(1)( c) is bad in law and 2 Mr. Paresh Bhavanji Vora Vs. DCIT, Central Circle-7(4)
2. The Ld. CIT(A) erred in confirming penalty u/s 271(1)(c) levied by AO on addition of alleged bogus purchases without appreciating that the notice u/s 271(1)(c) did not strike out the irrelevant portion resulting in breach of principles of natural justice and hence, penalty u/s 271(1)( c) may be deleted.
3. The Ld CIT(A) erred in confirming penalty u/s 271(1)(c) levied by AO on addition of alleged bogus purchases without appreciating that A.O. had levied penalty on both charges which is impermissible in law and hence penalty u/s 271(1)( c) may be deleted. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.”
Briefly stated, the assessee who is engaged in the business of a civil contractor had filed his return of income for A.Y. 2010-11 on 29.09.2010, declaring a total income of Rs.50,93,670/-. Subsequently, the assessee revised his return of income on 30.03.2012 declaring his income at Rs.50,93,670/-. Original assessment under Sec.143(3) was framed in the case of the assessee vide order passed under Sec.143(3), dated 26.12.2012, determining his total income at Rs.54,00,490/-.
On the basis of information received by the A.O from the DGIT(Inv.), Mumbai, that the assessee had obtained accommodation entries in the form of purchases from certain bogus concerns which were in the business of providing bills without delivery of goods etc. in exchange of cash or commission basis, the case of the assessee was reopened under Sec.147 of the Act. In the course of the assessment proceedings it was observed by the A.O that the assessee had claimed to have made purchases aggregating to Rs.23,93,611/- from the following 6 parties:
Sr. No. Particulars Amount 1. M/s Somnath International (AISPG1601K) Rs.4,52,520/- 2. Jasmine Enterprises (ALXPM4040Q) Rs. 18,984/- 3. Chetna Enterprise (AAJPS8292B) Rs.2,01,477/- 4. V.M. Udyog (AGKPC6868L) Rs.3,62,780/- 5. Shraddha Trading Co. (AOTPM8042B) Rs.8,82,030/- 6. Bhumi Sales Corporation (AAEPD7085N) Rs.4,75,820/- Total Rs.23,93,611/- In order to verify the genuineness and veracity of the aforesaid purchase transactions, the A.O directed the assessee to furnish certain details alongwith copies of purchase bills in respect of the impugned purchases made from the 3 Mr. Paresh Bhavanji Vora Vs. DCIT, Central Circle-7(4) aforementioned parties. In compliance, the assessee furnished copies of the purchase bills, ledger accounts, and submitted before the A.O that he had made genuine purchases from the aforementioned parties and had made the payments to them through banking channels. However, the A.O in order to verify the authenticity of the aforesaid purchase transactions issued notices under Sec.133(6) to the abovementioned parties, which however, were returned unserved by the postal authorities. Observing, that the notices issued to the aforementioned parties had been returned unserved, the A.O held a conviction that the details/documents furnished by the assessee in the form of purchase bills and bank statements etc. did not substantiate the genuineness of the purchase transactions in question to the hilt. Accordingly, the AO being of the view that the assessee had failed to discharge the onus and therein prove the genuineness of the purchase transactions in question on the basis of irrefutable evidence, disallowed the entire amount of purchases of Rs.23,93,611/- and added the same to the returned income of the assessee under Sec.69C of the Act.
Aggrieved, the assessee assailed the assessment order before the CIT(A). After necessary deliberations, the CIT(A) being of the view that the disallowance of 100% of the amount of purchases was not justified, thus, on an estimate basis sustained the disallowance to the extent of 30% of the aggregate value of purchases of Rs.23,93,611/-, and resultantly, upheld the addition to the extent of Rs.7,18,083/-, vide his order dated 11.07.2016.
The assessee being aggrieved with the order of the CIT(A) therein assailed the same before the Tribunal. As the assessee had failed to rectify certain defects in the memorandum of appeal, the same was thus dismissed by the Tribunal vide its order passed in dated 30.08.2017. However, the aforesaid order of the Tribunal was thereafter recalled, and the Tribunal vide its order passed in ITA No. 6105/Mum/2016, dated 15.10.2018, therein restricted the addition to the extent of 10% of the impugned/disputed purchases. The A.O after receiving the order passed by 4 Mr. Paresh Bhavanji Vora Vs. DCIT, Central Circle-7(4)
the CIT(A) therein called upon the assessee to explain as to why penalty under Sec. 271(1)(c) as regards the addition of Rs.7,18,083/- that was sustained by the CIT(A), vide his order dated 11.07.2016, may not be imposed on him. As the reply filed by the assessee wherein he had tried to impress that no penalty under Sec.271(1)(c) was called for in his case did not find favour with the A.O, the assessee was therefore subjected to penalty u/s 271(1)(c) of Rs.2,15,424/-.
Aggrieved, the assessee assailed the penalty imposed by the A.O under Sec. 271(1)(c) before the CIT(A). Observing, that the Tribunal had restricted the addition in the case of the assessee to the extent of 10% of the impugned bogus purchases, the CIT(A) while principally agreeing with the A.O that the assessee was liable to be saddled with penalty under Sec.271(1)(c), however, directed him to re-compute the penalty in order to bring the same in terms with the scaling down of the disallowance pursuant to the order of the Tribunal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. It was submitted by the ld. A.R that the addition was made by the A.O only on an estimate basis and not on the basis of any concrete documentary evidence which would disprove the genuineness of the purchases in question. It was averred by the ld. A.R that though the purchase transactions which in the backdrop of insufficiency of documentary evidence had remained unproved to the satisfaction of the A.O, would justify an addition in the course of the assessment proceedings, however, the same on the said standalone basis would not justify levy of penalty under Sec. 271(1)(c).
Per contra, 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 admittedly made bogus purchases, thus, the A.O had rightly imposed penalty under Sec. 271(1)(c), which thereafter was principally sustained by the CIT(A).
5 Mr. Paresh Bhavanji Vora Vs. DCIT, Central Circle-7(4)
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, in the case before us the A.O had stamped the purchases aggregating to Rs.23,93,611/- that were claimed by the assessee to have been made from the aforementioned 6 parties, as bogus, for the reason, that the assessee had failed to prove the authenticity of the purchase transactions on the basis of clinching documentary evidence to the satisfaction of the A.O. In other words, the A.O had declined to accept the authenticity of the purchase transactions under consideration, for the reason that the documentary evidence produced by the assessee did not substantiate the authenticity of the same to the hilt. We have deliberated at length on the issue under consideration, and find, that the addition made by the A.O is merely backed by an unproved claim of the assessee, and not a claim which was disproved to the hilt on the basis of irrefutable documentary evidence by the revenue. In the backdrop of the aforesaid facts, it can safely be concluded that though the unproved purchases would justify an addition in the hands of the assessee, however, merely on the said standalone basis no penalty u/s 271(1)(c) could have been validly imposed. We find that our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Upendra V. Mithani (ITA (L) No. 1860 of 2009), dated 05.08.2009, wherein it was observed as under:-
“The issue involved in the appeal revolves around deletion of penalty under Section 271(1)(c) of the I.T. Act. The Tribunal has concurred with the view taken by the Commissioner of Income Tax (A). The Commissioner of Income Tax (A) has rightly taken a view that no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If the assessee gives an explanation which is unproved but not disproved, i.e. it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee‟s case is false. The view taken by the Tribunal is a reasonable and possible view. The appeal is without any substance. The same is dismissed in limine with no order as to costs.” We are of the considered view that the assessee in the case before us had failed to substantiate the genuineness and veracity of the purchases claimed by him to have been made from the aforementioned parties by placing on 6 Mr. Paresh Bhavanji Vora Vs. DCIT, Central Circle-7(4) record the documentary evidence as was called for by the A.O. But then, as it is a matter of fact borne from the records that the assessee had evidenced the veracity of the impugned purchase transactions by furnishing certain documents viz. purchase bills, ledger accounts of parties, bank statements etc, the authenticity of which had neither been dislodged nor disproved by the lower authorities, therefore, the same in itself would suffice to take the case of the assessee beyond the realm of the penal provisions contemplated under Section 271(1)(c). Our aforesaid view is fortified by the order of the Hon‟ble Supreme Court in CIT-2 Lucknow Vs. U.P State Bridge Corporation Ltd. (SLP) (Civil) (2018) 97 Taxman.com 279 (SC), wherein the Hon‟ble Apex Court while upholding the order of the Hon‟ble High Court of Allahabad, had observed, that where a claim of expenditure is neither found inaccurate nor could be viewed as concealment of income on the part of the assessee, then merely because the said claim was not accepted or acceptable to the revenue, that by itself would not attract penalty under Sec. 271(1)(c). Now, in the case before us, as the revenue had failed to disprove to the hilt on the basis of clinching documentary evidence, the authenticity of the claim of the assessee of having made purchases from the aforementioned parties, therefore, merely on the basis of the unproved claim of purchases no penalty under Sec. 271(1)(c) could have been validly imposed on the assessee. In fact, the restriction of the disallowance of entire purchases made by the A.O to 30% of the aggregate value of such purchases by the CIT(A), which thereafter was substituted by 10% by the Tribunal, speaks for itself that the disallowance sustained in the hands of the assessee is merely backed by a process of estimation and not based on any concrete evidence. Accordingly, as in the case before us no clinching material had been brought on record by the revenue which could disprove the authenticity of the purchases claimed by the assessee to have been made from the aforementioned parties, no penalty under Sec.271(1)(c) could have thus validly been imposed upon him. We thus not being able to persuade ourselves to subscribe to the observations of the 7 Mr. Paresh Bhavanji Vora Vs. DCIT, Central Circle-7(4) lower authorities therein vacate the penalty imposed by the A.O under Sec. 271(1)(c).
Accordingly, the order of the CIT(A) upholding the penalty imposed by the A.O under Sec. 271(1)(c) is vacated.
Resultantly, the appeal filed by the assessee is allowed.
Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.