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Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri Ravish Sood & Shri N.K. Pradhan
Appellant by: Shri Ajit Pal Singh Daia, D.R Respondent by: Shri Aditya Ramchandan, A.R Date of Hearing: 22.01.2020 Date of Pronouncement: 29.01.2020 O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-40, Mumbai, dated 26.06.2018, which in turn arises from the order passed by the A.O under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short „Act‟), dated 23.03.2016. The revenue has assailed the impugned order on the following grounds of appeal before us: “1. On the facts and circumstances of the case the ld CIT(A) has erred in quashing the order passed u/s. 271(1)(c) by the AO without appreciating the facts that the assessee has furnished inaccurate particulars of income in respect of certain alleged purchases made by the assessee.
2. The appellant crave leave to add, to amend, alter, substitute or modify any of the above ground or add a fresh ground as and when found necessary either before or at the time of hearing.”
2. Briefly stated, the assessee who is engaged in the business of trading in iron and steel products had filed his return of income for A.Y. 2009-10 on 21.09.2009, declaring his total income at Rs.7,28,704/-. The return of income filed by the assessee was processed as such 2 ITO -29(2)(1) Vs. Kirti K. Mehta under Sec.143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
In the course of the assessment proceedings information was received by the A.O from the DGIT(Inv.), Mumbai that the assessee as a beneficiary had obtained accommodation bills aggregating to Rs.19,91,361/- from 3 hawala parties without any actual supply of material from them, as under:
Name of the party PAN A.Y. Amount (Rs.) Maulik Enterprises BMCPS0117D 2009-10 10,28,599 S.S. Enterprise ABGFS2578E 2009-10 4,47,845 Saileela Trading Pvt. Ltd. AAKCS4578C 2009-10 5,14,917 Total Amount 19,91,361 In order to verify the genuineness and veracity of the aforesaid purchase transactions the A.O issued notices under Sec.133(6) to the above mentioned parties. However, in most of the cases the notices were returned unserved, while for in the remaining cases there was no response from the concerned parties. In the backdrop of the aforesaid facts, the A.O directed the assessee to produce the aforementioned parties for necessary examination. Also, the assessee was required to furnish certain supporting documentary evidence in support of the authenticity of the aforesaid purchase transactions viz. ledger account of the parties concerned in his books accounts, copies of the purchase bills, details of corresponding sales, transportation bills etc. However, the assessee failed to comply with the directions of the A.O and did not produce the parties for necessary examination before him. Also, the assessee failed to place on record the details as regards the transportation of the goods under consideration. Further, the A.O was also not persuaded to accept the claim of the assessee that as the payments to the aforementioned parties were made through banking channels, therefore, the same evidenced the authenticity of the purchase transactions under consideration. At the same time, it was observed by the A.O that the sales corresponding to the aforesaid purchases were duly accounted for by the assessee in her books of accounts for the year under consideration. As such, the A.O was of the view that in the totality of the aforesaid facts it could safely be concluded that the assessee had purchased the goods not from the aforementioned parties but from certain parties operating in the open/grey market. On the basis of his aforesaid deliberations the A.O held a strong conviction that the assessee had inflated the purchases by 3 ITO -29(2)(1) Vs. Kirti K. Mehta obtaining inflated purchase bills from the aforementioned hawala parties. Accordingly, the A.O rejected the books of accounts of the assessee in terms of the provisions of Sec.145(3) of the Act. Being of the view, that the assessee had failed to satisfactorily explain the source of the purchases under consideration, the A.O made an addition of the entire value of the impugned purchases of Rs.19,91,361/- under Sec.69C of the Act.
Aggrieved, the assessee assailed the assessment order before the CIT(A). After deliberating on the facts of the case the CIT(A) restricted the addition to 20% of the alleged bogus purchases and restricted the addition to Rs.3,98,272/- (20% of Rs.19,91,361/-).
The A.O after receiving the order of the CIT(A) called upon the assessee to explain as to why penalty under Sec. 271(1)(c) may not be imposed upon her to the extent the addition/disallowance had been sustained by the CIT(A). As the reply filed by the assessee did not find favour with the A.O, therefore, he imposed a penalty under Sec. 271(1)(c) of Rs.1,35,373/- on the assessee.
Aggrieved, the assessee assailed the order of the A.O imposing penalty under Sec. 271(1)(c) before the CIT(A). Observing, that the addition as regards the impugned bogus purchase was made in the hands of the assessee on the basis of an estimate, the CIT(A) was of the view that no penalty under Sec. 271(1)(c) could have been validly imposed on the assessee. In fact, the CIT(A) while concluding as hereinabove had drawn support from the order of the ITAT “E” bench, Mumbai in the case of Earth Moving Equipment Service Corporation Vs. DCIT -22(2), Mumbai [ITA No. 6617/Mum/2014]. Also reliance was placed by the CIT(A) on the order of the ITAT “E”, Bench, Mumbai in the case of ITO-8(1),-3, Mumbai Vs. M/s ETCO Telecom Ltd. [ITA Nos. 5243, 5998 & 5999/Mum/2012, dated. 17.12.2014] and ACIT Vs. M/s Balaji Construction [ITA No. 217/Mum/2015]. On the basis of his aforesaid deliberations the CIT(A) observing that as the A.O had not brought on record any material which could prove furnishing of inaccurate particulars of income within the meaning of Sec. 271(1)(c) of the Act by disproving the claim of the assessee, therefore, concluded that penalty under Sec. 271(1)(c) could not have been validly imposed upon her.
4 ITO -29(2)(1) Vs. Kirti K. Mehta
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the assessee had failed to substantiate the genuineness and veracity of her claim of having made purchases from the aforementioned parties on the basis of any concrete documentary evidence before the lower authorities. On a perusal of the order of the CIT(A), we find, that the latter had while disposing off the quantum appeal of the assessee restricted the addition to 20% of the aggregate value of the impugned bogus purchases. As such, it can safely be concluded that the addition sustained by the CIT(A) as regards the impugned bogus purchases is merely backed by a process of estimation and not based on any clinching documentary evidence disproving the authenticity of the claim of the assessee. We are of a strong conviction that the failure on the part of the assessee to substantiate the authenticity of the purchase transactions would have though justified a quantum addition, but the same on such standalone basis would by no means justify imposition of penalty under Sec. 271(1)(c) upon the assessee. Although, we find that the assessee had failed to substantiate the genuineness and veracity of the impugned purchase transactions to the satisfaction of the A.O, but then we also cannot remain oblivious of the fact that she had to some extent placed on record certain material in order to support her claim of having made purchases from the aforementioned parties. In the backdrop of the aforesaid facts, it can safely be concluded that though the unproved purchases justified an addition in the hands of the assessee, however, no penalty under Sec. 271(1)(c) merely on the said standalone basis could have been validly imposed upon her. 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.”
5 ITO -29(2)(1) Vs. Kirti K. Mehta Accordingly, in the case before us as the revenue had failed to disprove to the hilt on the basis of any clinching documentary evidence the authenticity of the claim of the assessee that she had made purchases from the aforementioned parties, therefore, in our considered view no infirmity emerges from the order of the CIT(A) who had rightly concluded that no penalty under Sec. 271(1)(c) could have been imposed upon the assessee in respect of the aforesaid addition that was merely backed by a process of estimation and not on the basis of any concrete material disproving the veracity of the assesses claim of having made genuine purchases from the aforementioned parties. Accordingly, we uphold the order passed by the CIT(A).
Resultantly, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 29.01.2020