ITO 21 (2)(3), MUMBAI vs. MEWAR CERAMICS , MUMBAI

The only issue in this appeal of Revenue is against the order of CIT(A) deleting the penalty levied by AO under section 271(1)(c) of the Act on the basis that the addition was made on account of bogus purchases thereby the assessee has furnished inaccurate particulars of income. For this, Revenue has raised the various grounds, which are argumentative in nature.

Brief facts are that the AO received information from Sales Tax Authorities that the assessee was engaged in obtaining bogus bills without actually purchases and taking delivery of goods. The assessee made bogus purchases from Laxmi Trading Company amounting to ₹19,17,586/- and AO estimated the profit rate on such bogus purchases at 12.5% and made addition of Rs. 2,39,698/-. This addition was accepted by the assessee and no further appeal was filed. In the meantime, the AO initiated the penalty proceedings and levied the penalty by observing that the assessee claimed bogus purchases amounting to ₹19,17,586/- and accordingly, assessee furnished inaccurate particulars of income and thereby, he levied the penalty under section 271(1)(c) of the Act on the addition amount of ₹2,39,698/-, thereby levied the penalty amounting to ₹79,066/-under section 271(1)(c) of the Act. Aggrieved, 3 | P a g e Mewar ceramics assessee preferred the appeal before CIT(A), who deleted the penalty by observing in para 7.2 and 7.3 as under: - “7.2 On careful perusal of penalty order and the written submission of the appellant, it is found that the appellant had submitted various evidences viz., Ledger Accounts of the purchasers, Copies of Invoices, Delivery Challans, Bank Statements duly reflecting the payment effected by Account Payee Cheques etc. during the assessment proceedings. It is observed that the veracity of these documents are neither examined by the AO nor disproved. No detailed enquiry was carried out to establish the said purchase of goods claimed from the suppliers. Hence, it cannot be said that the AO has established that the explanation offered by the appellant was false or the appellant has furnished inaccurate particulars of income. Just because, the appellant was unable to produce the relevant party, it cannot be said that the AO has established concealment of income or filing of inaccurate particulars of income. In my considered opinion. the claim of the 4 | P a g e Mewar ceramics appellant may be treated as debatable claim but not entirely a bogus claim. This is clear from the fact that the addition was made on an estimate basis and restricted to only 12.5% of the alleged bogus purchases.