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Income Tax Appellate Tribunal, MUMBAI BENCHES “H”, MUMBAI
Before: SHRI G. MANJUNATHA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against the order dated 20.02.2019 passed by the Commissioner of Income Tax (Appeals) -17 [for short ‘the CIT (A)] Mumbai, for the assessment year 2011-12, whereby the Ld. CIT (A) has dismissed the appeal filed by the assessee against the penalty order passed u/s 271 (1) (c) of the Income Tax Act, 1961 (for short the ‘Act’).
Brief facts of the case are that the assessee company engaged in the business of construction, repairs and engineering, filed its return of income for the assessment year under consideration declaring total income at Rs. 1,59,51,458/-. The return was processed u/s 143 (1) of the Act and the Assessment was completed u/s 143 (3) of the Act. Subsequently, on the basis of information received from the Sales Tax Deptt. Govt. of Maharashtra, that the assessee had obtained bogus purchase bills from ‘hawala’ dealers, AO reopened the assessment after issuing notice u/s 148 of the Act. Accordingly, the AO passed assessment order u/s 143 (3) r.w.s. 147 of the Act determining Assessment Year: 2011-12 the total income of the assessee at Rs. 6,16,71, 468/- after making addition of Rs. 4,57,20,006/- on account of bogus purchases shown by the assessee. In the first appeal, the Ld. CIT (A) restricted the disallowance to 12.5% of the total amount of bogus purchases. On the basis of the addition sustained by the Ld. CIT (A), the AO initiated proceedings u/s 271 (1 (c) of the Act and levied penalty of Rs. 18,98,380/- for furnishing inaccurate particulars of income. The assessee challenged the penalty order before the Ld. CIT (A). The Ld. CIT (A) confirmed the penalty levied by the AO. The assessee is in appeal before this Tribunal against the said order. 3. The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1 Natural Justice 1.1 The Learned Commissioner of Income-tax (Appeals)- 17, Mumbai [“Ld. CIT (A)” ] erred in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while framing the appellate order. 1.2 It is submitted that, in the facts and the circumstances of the case, and in law, the appellate order so framed be held as bad and illegal, as: (i) The same is framed in breach of the principles of natural justice, and (ii) The same is passed without application of mind to the facts and the submissions brought on record by the Appellant.
Without prejudice to the above 2.1 The Ld. CIT (A) erred in confirming the penalty levied by the A.O. u/s 271 (1) (c) of the Income Tax Act, 1961 [“the Act”]. 2.2 The Ld. CIT (A) failed to appreciate that the order passed by the A.O. and/or the penalty levied was bad and illegal as the necessary conditions for initiating the penalty proceedings and the completion thereof were not fulfilled. 2.3 It is submitted that in the facts and the circumstances of the case, and in law, no such penalty was leviable. Assessment Year: 2011-12 Without further prejudice to the above 3.1 The Ld. CIT (A) erred in confirming the action of the A.O. in levying penalty of Rs. 18,98,380/- u/s 271 (1) (c) of the Act on the allegation of concealment of income/furnishing inaccurate particulars of income by the Appellant. 3.2 It is submitted that in the facts and the circumstances of the case, and in law, even on merits, no such penalty was leviable.
4. Before us, the Ld. counsel for the assessee submitted that the AO had made 100% addition of the alleged bogus purchases on the ground that the assessee failed to establish the genuineness of the transaction of purchases. On the other hand, the Ld. CIT (A) restricted the addition to 12.5% of the total amount of alleged bogus purchases determined by the AO by following the judgments of the various High Courts including the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Seth 356 ITR 451(Guj) and the decisions of the various Benches of the Tribunal. The Ld. counsel further pointed out that since the Ld. CIT (A) has sustained the addition of 12.5% of the total amount of bogus purchases in quantum appeal on estimation basis, the Ld. CIT (A) ought to have deleted the penalty levied u/s 271 (1) (c) of the Act. The Ld. counsel relying on the decision of the ITAT Mumbai in the case of Sh. Ajay Loknath Lohia vs. ITO, AY 2009-10l, Sameer D. Punjabi, ITA No. 1564/M/2017 and ETCO Telecom Ltd. vs. ITO, ITA No. 5243/M/2012, Elcon Pipe and Fittings Pvt. Ltd. vs. ITO, ITA No. 496/Mum/2018, AY 2009-10, Shri Deepak Gogri vs. ITO, ITA No. 1396/Mum/2017, AY 2011-12, and Mohammed Sharif vs. ITO, ITA No. 2408/Mum/2018, AY 2009-10,l submitted that since addition made on estimation basis does not amount to concealment of income or furnishing inaccurate particulars of the income within the meaning of section 271 (1) (c) of the Act, the Ld. CIT(A) has wrongly confirmed the penalty levied by the AO. The counsel accordingly submitted that since the issue involved in the present appeal is covered in favour of the assessee by the aforesaid decisions of the Tribunal, the impugned order is liable to be set aside. Assessment Year: 2011-12
On the other hand, the Ld. departmental representative (DR) supported the order passed by the Ld. CIT(A) on the ground that since the ITAT has sustained the addition of 12.5% of total amount of bogus purchases, the Ld. CIT(A) has rightly upheld the penalty 6. We have heard the rival submissions of the parties and perused the material on record in the light of the rival contentions. As pointed out by the Ld. counsel, the Ld. CIT(A) has restricted the addition of 12.5% of the total amount of bogus purchases made by the AO. In the case of Sh. Ajay Loknath Lohia vs. ITO (supra), the coordinate Bench of the Tribunal has deleted the penalty levied u/s 271(1)(c) of the Act, levied on the basis of addition sustained on estimation basis. The relevant para of the order read as under: “8. Having heard both the sides, we find merit in the arguments of the assessee for the reason that although the AO has estimated 25% gross profit on alleged bogus purchases, never made by observations with regard to the incorrectness in details filed by the assessee to prove such purchases. 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. From these facts, it is very clear that the AO failed to make a case of deliberate attempt by the assessee to furnish inaccurate particulars of income. Therefore, we are of the considered view that mere 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. Hence, we are of the considered view that the AO was erred in levying penalty u/s 271 (1) (c) of the Act. Accordingly we direct the AO to delete the penalty levied u/s 271 (1) (c) of the Act.”
Similarly, in the case of Sameer D. Punjabi and ETCO Telecom Ltd.,(supra), the coordinate Bench has categorically held that the addition made on estimation basis does not amount to concealment of income or furnishing of inaccurate particulars of income within the meaning of Section Assessment Year: 2011-12 271(1)(c) of the Act. The findings of the coordinate Bench in the case of Sameer D. Punjabi and ETCO Telecom Ltd. (supra) read as under :-
“3. A perusal of the order of the authorities below reveal that purchases effected by the assessee from four parties totaling to Rs.4,66,133/- were found to be doubtful in view of the information received regarding the four parties from the Maharashtra Sales Tax Department. In the assessment proceedings assessee was not able to produce the four parties for verification and, therefore, the Assessing Officer proceeded to treat the purchases to the extent of Rs.4,66,133/- as bogus. So however, the Assessing Officer did not add the entire amounts of purchases to the returned income but added only profit element attributable to such purchases, which he estimated at 12.50% thereby, resulting in an addition of Rs.58,266/- to the returned income. Subsequently, the Assessing Officer levied penalty under section 271(1)(c) of the Act on the ground that assessee had concealed the income to the above extent and accordingly, a penalty of Rs.18,006/- was imposed. The penalty has since been affirmed by the CIT(A) also.
We find that the plea of the assessee before the lower authorities has been that the levy of penalty is not automatic and that the transactions of purchase effected from the four parties were well documented and the payments were also made through banking channels. After hearing the Ld. Departmental Representative, we find that there is no justification to levy the penalty under section 271(1)(c) of the Act, inasmuch as, it is a case of failure of the assessee to substantiate an entry of purchase in the books of account and it is not a case where some falsity or untruth has been established. In fact, the Assessing Officer proceeded to add to the returned income only the amount of profit element because of the fact that the sales effected by the assessee corresponding to the impugned purchases were accepted. Be that as it may, it is a case of mere non- substantiation of an expenditure and not a case where falsity has been proved to the hilt. Even if one has to go by the manner in which the addition has been made by the Assessing Officer by resorting to estimating the profit element no penalty is sustainable. Therefore, in this view of the matter, we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the Assessment Year: 2011-12 penalty of Rs.18,006/- imposed under section 271(1)(c) of the Act.”
In the present case, the AO made addition of the total amount of bogus purchases. However, the Ld. CIT(A) restricted the addition to 12.5% of the questioned purchases, which was confirmed by the Tribunal in further appeal. The coordinate Bench has decided the identical issue in case of Sh. Ajay Loknath Lohia vs. ITO and Sameer D. Punjabi, ETCO Telecom Ltd. and other cases (supra), in favour of the assessee. Since the facts of the present case are similar to the facts of the cases relied upon by the Ld. counsel for the assessee and the issues involved are identical, we do not find any reason to take a different view in this case. Hence, respectfully following the decision of the coordinate Benches discussed above, we decide this issue in favour of the assessee. Accordingly, we set aside the impugned order passed by the Ld. CIT(A) and direct the AO to delete the penalty levied/s 271(1)(c) of the Act.
Since we have allowed the appeal of the assessee on the ground that addition on estimation basis in this case does not amount to concealment of income or furnishing inaccurate particulars of income, the other grounds raised by the assessee have become academic. Hence, the same do not require adjudication. In the result, appeal filed by the assessee for assessment year 2011- 2012 is allowed. Order pronounced on 8th June, 2020 under rule 34(4) of the ITAT Rules, 1963. (G. MANJUNATHA) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 08/06/2020