R NO. 25 B WING 6TH FLOOR AHSAR IT PARK WAGLE INDIL. ESTATE ROAD NO 16Z THANE WEST , THANE vs. SHRI. JIGNESH AMRUTLAL SHAH, THANE

O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the revenue against the order of the Learned Commissioner of Income Tax (Appeals) – 1, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 03.12.2018 for the Assessment Year 2010-11.

3. Briefly stated the facts are that, assessee an individual engaged in the business of “Trade of hardware and electrical items” and filed return of income on 12.10.2010 declaring income of ₹.2,82,498/-. Assessment was reopened u/s. 147 of the Act and reassessment was completed on 23.02.2015 u/s. 143(3) r.w.s 147 of the Act determining the income at ₹.8,05,340/-. While completing the reassessment the Assessing Officer treated the purchases of ₹.5,22,838/- made from various dealers as non-genuine on the basis of the information received from Sales Tax Department, Mumbai that assessee has received accommodation entries from those parties’ without making any purchases but made purchases only in gray market. The Assessing Officer treated such purchases from (A.Y: 2010-11) Shri Jignesh Amrutlal Shah various parties as non-genuine as the assessee could not produce the parties and also could not establish the movement of goods. Further, the notices issued to the parties u/s. 133(6) of the Act were also returned unserved. Thus, the Assessing Officer estimated the profit element from the non-genuine purchases at 12.5% and brought to tax. Assessing Officer initiated the penalty proceedings and levied penalty u/s. 271(1)(c) of the Act stating that the assessee has y furnished inaccurate particulars of income thereby concealed its true and correct income within the meaning of section 271(1)(c) of the Act. On appeal the Ld.CIT(A) deleted the penalty. Against this order of the Ld.CIT(A), revenue is in appeal before us.

4. Ld. Counsel for the assessee supported the order of the Ld.CIT(A) and on the other hand, Ld. DR vehemently supported the order of the Assessing Officer.

(A.Y: 2010-11) Shri Jignesh Amrutlal Shah 1396/MUM/2017 dated 23.11.2017 held that no penalty is leviable observing as under: -

“6. We have heard the rival submissions, perused the orders of the authorities below. In so far as the penalty levied on estimation of profit element on purchases is concerned, we are of the view that Assessing Officer had made only adhoc estimation of profit on certain purchases treated as unexplained expenditure. Assessing Officer did not doubt the sales made by the assessee from out of such purchases. Assessing Officer based on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [356 ITR 451] estimated the profit element in such purchases at 12.5% and by reducing the Gross Profit already declared by the assessee. In the circumstances, we hold that there is no concealment of income or furnishing of inaccurate particulars as the profit element was determined by way of adhoc estimation. Coming to the interest, the assessee furnished complete details in the return of income and made a claim and simply because the claim is denied and cannot lead to furnishing of inaccurate particulars or concealment of income. No allegation by Assessing Officer that the assessee failed to disclose the particulars relating to its claim in the return of income. Thus we hold that there is no concealment of income or furnishing of inaccurate particulars of income. Thus we direct the Assessing Officer to delete the penalty levied u/s. 271(1)(c) of the Act.”

“9. We have heard the rival parties and carefully considered material placed before us including the order of the authorities below. We find from the assessment order that the AO has made an addition of Rs.45,76,587/- being 5% on total purchases on estimated basis in order to bring the bogus purchases to tax on the basis of information received from the third party i.e. State Sales Tax Department and DDIT(Inv) V(I), Mumbai which was not challenged by the assessee before the FAA and attained finality. Thereafter the AO levied penalty u/s 271(1)( c ) of the Act on the ground that the assessee did not challenge the assessment order and accepted additions so made thereby accepting the concealment of income. We find from the record that the additions as made by the AO was a pure estimate and nothing concrete as to bogus purchases were brought on records by the AO by making any further enquiries or investigation. In our view the penalty cannot be imposed where the additions are made on estimate basis. The Tribunal has considered an identical issue in the case of Deepak Popatlal Gala, in and vide order dated 27.3.2015, it has held as under:- “10. The next issue relates to disallowance made out of purchases and assessed u/s 69C of the Act. We heard the parties and perused the record. The total purchase expenditure claimed by the assessee during the year under consideration was Rs.7,36,27,555/-. The AO noticed that the Sales (A.Y: 2010-11) Shri Jignesh Amrutlal Shah Tax Department of Government of Maharashtra has listed out names of certain dealers, who were alleged to have been providing accommodation entries without doing actual business. The AO noticed that the assessee made purchases to the tune of Rs.38.69 lakhs from two parties named M/s Umiya Sales Agency Pvt Ltd and M/s Mercury Enterprises, whose names found place in the list provided by the Sales Tax Department. The AO placed full reliance on the enquiries conducted by Sales Tax Department in respect of the parties, referred above. Accordingly, the AO took the view that the purchases to the tune of Rs.38.69 lakhs have to be treated as unexplained expenditure. Accordingly, he assessed the same u/s 69C of the Act.

(A.Y: 2010-11) Shri Jignesh Amrutlal Shah this issue. Hence, we do not find any reason to interfere with his order on this issue. “ We also find that in the following cases the Tribunal has taken similar view in some of the case that on the basis of third party evidence, addition made by the AO cannot be held as good law and deleted the addition which are as under: - a) Ramesh Kumar and Co V/s ACIT in (AY-2010-11) dated 28.11.2014; b) DCIT V/s Shri Rajeev G Kalathil in ITA No.6727/Mum/2012 (AY-2009-10) dated 20.8.2014; and c) Shri Ganpatraj A Sanghavi V/s ACIT in ITA No. 2826/Mum/2013 (AY-2009-10) dated 5.11.2014 10. In all the above said cases, the Co-ordinate Benches of the Tribunal has held that the AO was not justified in making the addition on the basis of statements given by the third parties before the Sales Tax Department, without conducting any other investigation. In the instant case also, the assessing officer has made the impugned addition on the basis of statements given by the parties before the Sales tax department. Considering the facts as discussed hereinabove, we are of the considered opinion that in view of the ratio in the various decisions as above penalty cannot be sustained. It is also a settled legal position of law that penalty cannot be levied wherein the assessment is made on estimation basis. Accordingly, we are inclined to uphold the order passed by the ld.CIT(A) by dismissing the appeal of the revenue.”

“3. On further appeal, the Tribunal reduced the addition to Rs. 1,50,000. Hence, the income was finally assessed at Rs. 1,50,000 against the declared income of Rs. 52,000. The Assessing Officer initiated penalty proceedings against the assessee by invoking Section 271(1)(c) along with the Explanation 1(B) of the Act on the plea that he had concealed the particulars of his income. A show-cause notice was issued to him under Section 274 read with Section 271(l)'(c) of the Act. In reply thereto, the assessee pleaded that since no positive concealment had been detected by the Department and the addition was made in his income only on estimate basis, no penalty under Section 271(1)(c) of the Act could be imposed because the assessee's income on estimate basis keeping in view his household expenses as well as the statement of accretion to his assets during the year under consideration, was bona fide. The Assessing Officer did not accept the reply and found that since the assessee had not filed any fresh evidence in penalty proceedings to prove that there was no attempt on his part to conceal his income, he, by his order dated March 10, 1992, imposed a penalty of Rs. 50,000. Feeling aggrieved by this order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), Patiala, who allowed the same holding that there was indeed no positive evidence whatever to show that the appellant's income during the year in question was, in fact, more than the income returned by him and that estimated additions in the returned income do not attract penalty under Section 271(1)(c)of the Act. The Revenue went up in appeal before the Income-tax