HITEN YOGESH THAKKAR,MUMBAI vs. ITO 26 (1)(5), MUMBAI

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-38, Mumbai [in short ‘CIT(A)’] and arises out of penalty levied u/s 271(1)(c) of the Income Tax Act 1961, (the ‘Act’).

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 levying penalty under section 271(1)(c) of the Income-tax Act 1961 amounting to Rs.120,000/- 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 MAVT Department accepting the same purchases which the Assessing Officer treated as non-genuine.

3. Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2009-10 on 25.09.2009 declaring income of Rs.5,63,960/-. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained accommodation entries through bogus purchase bills from hawala parties, the AO made an addition of Rs.21,17,152/-.

In appeal filed by the assessee, the Ld. CIT(A) restricted the disallowance to 17.67% of the alleged bogus purchases of Rs.21,17,152/- which comes to Rs.3,74,100/-. The reasons given by the Ld. CIT(A) vide order dated 29.01.2016 are as under :

“To sum up, it is held that in many such bogus billing cases, it is presumed that assessee might have procured bills from grey market and to cover such purchases he would have taken bogus bills. In view of the above facts, the purchases are held to be not bogus but have been made from the parties other than those mentioned in the books of account of the appellant. This being the case, not the entire purchase price but only the profit element embedded in such purchases should be added to the total income of the appellant. In such a case, the best course of action would be to apply GP ratio and confirm certain percentage of alleged purchases to cover any Hiten Yogesh Thakkar leakage of revenue. The appellant shows in the paper book that his GP ratio in the A.Y. 2009-10 under consideration is 17.67% as against 26.07% and 18.43% in A.Y. 2008-09 and A.Y. 2007-08 respectively. It shows that the GP ratio of the appellant has though decreased during the year but it is to be noted that the sales turnover has increased substantially. In the given circumstances, I propose to apply 17.67% GP on the alleged purchases of Rs.21,17,152/- since GP of 17.67% has been declared by the appellant during the year under consideration. Therefore, I direct the AO to estimate profit of 17.67% on the total alleged bogus purchases which works out to Rs.3,74,100/- (17.67% of Rs.21,17,152/-). The appellant therefore gets a relief of Rs. 17,43,052/-.”

In appeal, the Ld. CIT(A) upheld the penalty of Rs.1,20,000/- levied on the ground that :-

“5 In my considered opinion estimation is made only to ascertain the embedded profit in such transactions executed by the appellant involving recording of accommodation entries in the books of the appellant. Adopting certain percentage to work out the profit does not wipe away the fact that appellant has obtained bogus bills and made false entries in the books of account of the appellant at higher prices mentioned in the alleged bogus purchase bills with the sole motive of inflating business expenses in the guise of purchases and lowering taxable business income while the purchases are made from other sources at lower prices. The very fact that the appellant recorded in the books purchases based on bogus purchase bills obtained from the parties identified as hawala dealers as per the enquiry reports of the Maharashtra Sales Tax Department and admitted by the main persons of the alleged suppliers in their deposition, declaration in the affidavits establishes in Hiten Yogesh Thakkar unequivocal manner the fact that the accounts of the appellant are not correct and based on these inaccurate and falsified accounts the income from business has been computed and declared in the return filed for the instant assessment year. The above facts and circumstances affirm that the appellant has furnished inaccurate particulars of income and has concealed its income thereby liable to be penalized within the provisions of Section 271(1)(c). The AO has rightly levied the penalty u/s. 271(1)(c) of the Income Tax, Act, 1961.”

At this moment, we refer to the details filed by the assessee before the AO during the course of assessment proceedings, as recorded at para 3 of the assessment order dated 14.03.2014 :-

“3. In response to the notices issued, Shri Vijay Shah, CA & authorized representative of the assessee, appeared and filed details from time to time. The assessee is importer trading in plastic goods. The assessee has shown Net Profit of Rs.6,68,028/-.

Apart from the details asked to submit as per notice 142(1), vide order sheet dated 31.01.2014 & 17.02.2014, Assessee was asked to submit the details of sales bills, purchase bills and prove the genuineness of the transaction of M/s. Jigar Enterprises & M/s. Niddish Impex Pvt. Ltd. He is also requested to produce the proof payment of transport bills etc.

In response AR vide submissions dated 31.01.2014 & 17.02.2014 filed the details of purchases made from M/s. Jigar Enterprises & M/s. Niddish Impex. He is also submitted the details of payments made those parties reproduced as under :-

With reference to the above, under instructions of our above client and in continuation of the interview the under signed had on 31.01.2014, we have to write to you as under :-

BILL NO. DATE AMT

158 04/08/2008 2,56,941/- 220 11/08/2008 1,17,916/- 283 19/08/2008 1,13,712/- 402 02/09/2008 2,35,507/- 463 08/09/2008 1,21,462/- 485 01/10/2008 2,35,507/- 491 03/10/2008 4,03,934/- 515 05/10/2008 3,21,955/- TOTAL 18,05,152/- b. Niddhish Impex :

BILL NO. DATE AMT 25/NIPL 06/01/2009 3,12,00/-

B. The said purchases of goods are mainly sold to M/s. Vardhaman Enterprises and other parties

C. We have made the payment for the purchases made from the above party as follows by payee's a/c cheque only : a. Jigna Enterprises :

BANK NAME CHEQUE NO. DATE AMT

PUNJAB AND MAHARASHTRA CO-OP BANK LTD. 261392 27/08/2008 1,17,916/- PUNJAB AND MAHARASHTRA CO-OP BANK LTD. 261396 01/09/2008 2,00,000/-

PUNJAB AND MAHARASHTRA CO-OP BANK LTD. 2,61,397 01/09/2008 2,56,941/- PUNJAB AND MAHARASHTRA CO-OP BANK LTD. 2,61,390 13/09/2008 4,00,000/- PUNJAB AND MAHARASHTRA CO-OP BANK LTD. 2,61,391 16/09/2008 1,33,890/- PUNJAB AND MAHARASHTRA CO-OP BANK LTD. 065104 08/10/2008 4,03,934/-

PUNJAB AND MAHARASHTRA CO-OP BANK LTD. 065105 13/10/2008 2,92,471/- TOTAL 18,05,152/-

(Photocopy of Bank A/c is filed vide letter No. 003, Dated 09/01/2014 duly acknowledged by you on 13/01/2014)

D. The above material is sold to M/s. Vardhaman Enterprises, address at 125, Kika Street, Gulalwadi, Mumbai- 400004, the payment of the same is received by cheque. (Photocopy of Bank A/c is filed vide letter no. 003, dated 09.01.2014, duly acknowledged by you on 13/01/2014) E. That we are in the position to identify the purchase with sales. F. That as the information is received by you from the Sales Tax Department, that the purchase is bogus, the parties have been declared as Hawala Dealers by the Sales Tax Department. We would like to cross examine the parties for the Sales made by them to us as we have all the evidence to prove that we have made genuine purchase of goods, as there is corresponding sales. G. Our books of accounts are duly audited u/s 44AB of the Income Tax Act, 1961. We also have the ledger confirmation of the party duly signed by them along with their PAN nos.

Hiten Yogesh Thakkar H. There are different types of Hawala Dealers under the M-VAT Act, 2002 and other High Court decisions in our favour : As per Annexure I & II

In our case as the Sale is identifiable, the question of disallowance does into arise as ‘if there is a sale, there must be a corresponding purchase of goods’. The above condition is fulfilled in our case therefore, the question of disallowance does not arise.”

6.1 We observe that though the assessee had filed the details as mentioned above containing his full explanation, the AO made an addition of Rs.21,17,152/-, without making any inquiry/verification. In such a situation like the present one wherein the Ld. CIT(A) has estimated the profit @ 17.67% of the total alleged bogus purchases which comes to Rs.3,74,100/-, We are of the considered view that penalty u/s 271(1)(c) is not leviable. The law that penalty would not be exigible merely because an addition is made on estimate basis was reiterated in CIT v. Raj Bans Singh (2005) 276 ITR 351 (All) and CIT v. Ajaib Singh & Co. (2002) 253 ITR 630 (P&H).

In view of the above factual matrix and position of law we delete the penalty of Rs.1,20,000/- levied by the AO u/s 271(1)(c) of the Act.