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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
This is in appeal by the revenue in the revenue is aggrieved that the learned CIT appeals has erred in deleting the penalty levied under section 271(1)(c) of the Act amounting to Rs. 4,19,448/- by order dated 21.2.2019 pertaining to assessment year 2010-11.
Brief facts of the case are that assessee in this case is engaged in business of manufacturer of plastic and rubber goods. During the course of assessment proceedings the assessing officer made disallowance of 100% of the purchases of Rs. 54,29,738/-. The same was restricted to 25% by learned CIT(A). Penalty under section 271(1)(c) of the Act amounting to rupees 4,19,448/-was also levied.
Upon assessee's appeal learned CIT(A) deleted the penalty by observing as under :- 5. I have carefully considered the facts of the case, findings of the AO, submission of the appellant and material placed on record. In the appeal order of the quantum appeal, the then CIT(A) had adjudicated that 25% of bogus purchases of Rs. 54,29,738/-, needed to be added to the income of the 2 Smt. Maya Anandprakash Rohra appellant and the same was upheld by the Hon'ble ITAT, Mumbai. Hence the addition to income has been sustained on estimation basis.
6. The Supreme Court has recently reiterated the law in case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 by holding in para 62 that finding in assessment proceedings cannot automatically adopted in penalty proceedings and the authorities have to consider the matter afresh from different angle. Moreover, in the case of Ajay Loknath Lohia, order dated 5.10.2018, Mumbai ITAT has addressed that when AO had estimated cost GP on alleged purchases, such disallowance does not tantamount to willful furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Income Tax Act, 1961.
In the case of ETCO Profiles Pvt. Ltd. vs. ACIT, in Hon'ble Mumbai ITAT had held that:
"the AO has disallowed 20% of purchases only on presumptions without establishing fully that the assessee has made purchases from grey market. Even, if it is assumed for a moment that the assessee might have purchased goods from grey market, it was not established that the amount of purchases was less than that recorded in the books of account. Under these set of facts, it has to be held that the impugned addition has been made only on estimated basis that too on presumptions only. Hence, by following the decision rendered by the Tribunal in the assessee's sister concern's case (supra), we hold that the impugned penalty is liable to deleted."
8. In the case of CIT v. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 (SC) it was held as under: -
"We do not agree, as the assesses had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature".
The levy of penalty is merely on disallowance of purchases and not finding of concealment to reduce taxable income. Addition made on account of disallowance of purchases as bogus automatically cannot justify the penalty levied u/s 271(1)(c) of the Act. Accordingly, the penalty of Rs. 4,19,448/-, imposed u/s 271(1)(c) of the IT. Act, by the AO, is hereby deleted and the grounds of appeal, raised as above, are allowed.”
Against this order revenue is in appeal before the ITAT.
3 Smt. Maya Anandprakash Rohra
I have heard the learned Departmental Representative and perused the records. I find the addition on account of bogus purchases has been done on estimated basis. The learned CIT(A) is correct in holding that the penalty under section 271(1)(c) of the Act in this case is not sustainable . I further note that the conduct of the assessee in this case cannot be considered be contumacious warrant levy of penalty under section 271(1)(c) of the Act. This proposition is supported by the decision of honourable Supreme Court decision the case of Hindustan Steel Vs. State of Orissa Vs. (83 ITR 26). Moreover the Id counsel of the assessee has pointed out that tax effect in this case is below the limit fixed by CBDT vide circular no 17/2019 dated 8.8.2019.
The Ld DR tried to mention that since the addition is based upon information from Sales tax Authority an outside agency the penalty can also considered to be so based and hence would fall under the exemption carved out in the said CBDT circular. I am not convinced by this argument. Once the revenue concedes that penalty has been levied based upon outside agency information the penalty would have no legs to stand.
7. Be as it may I uphold the order of Ld CIT(A) deleting the penalty.
In the result appeal filed by the revenue stands dismissed.
Order pronounced under Rule 34(4) of the ITAT Rules by placing the result on notice board on 19.11.2020.