NAUSHAD AHMED KHAN,MUMBAI vs. INCOME TAX OFFICER 26(2)(3), MUMBAI

The only issue in this appeal of assesse is against the order of CIT(A) confirming the penalty levied by AO u/s 271(1)(c) of the Act on estimated profit on bogus purchases at the rate of 12.5%.

Briefly stated facts are that the department received information from DGIT, Investigation Mumbai, who in turn received information from Sales Tax Department of Maharashtra that the assesse has taken bogus bill of purchase from the following parties.

Finally, the assesse accepted that he has taken bills but he also made purchase from grey market and for that he agreed that an estimate of profit @ 12.5% can be made of the bogus purchases and for this the assesse agreed and addition of Rs. 2,68,488/- was made vide Para 2.8 by the AO as under:-

No further appeal was filed by the assessee against this quantum addition. Consequent to this assessment year, the AO initiated the penalty proceedings and for this AO initiated as under: - “…. penalty proceedings u/s 271(1)(c) are separately initiated for furnishing inaccurate particulars of income and for concealing the income.”

At the outset, the learned Counsel for the assesse stated that the AO himself was not sure about charge of concealment of income and on charge itself the penalty will not survive. Secondly, the learned Counsel for the assesse stated that even on estimation of penalty of bogus purchase cannot be sustained in view of the decision of this Tribunal in the case of Mrs. Sonali A. Shah vs. ITO in for AY 2007-08 vide order dated 07.11.2016, wherein the Tribunal vide Para 7 and 8 reads as under: - “7. We have heard the rival submissions and perused the orders of the authorities below and the case law relied on. In this case the assessee is into the business of textiles, iron and steel. There was a survey in the premises of the assessee and in the course of survey it was noticed that the assessee was showing very low gross profit on the turnover from the business of textiles as well as iron and steel. The Assessing assessee seems to have given evasive replies. The survey party has also found that the assessee is operating her business in a small place on a sharing accommodation without even any furniture/staff etc. The survey party also recorded a statement from assessee’s husband who has stated that they did not have any opening stock or closing stock in both the business as they receive orders from the parties they place orders with the members directly and the material is supplied to the parties. The assessee raises bills on her client and in turn her suppliers also raise bills on the assessee. In the course of assessment proceedings, the Assessing Officer issued notices to various parties who have sold materials to the assessee. Many of the notices were returned unserved. However, assessee seems to have produced the confirmations before the Assessing Officer whereas notices were returned unserved. The Assessing Officer after noticing various discrepancies in the confirmations he treated such confirmations as dubious and non-genuine. In view of all these discrepancies the Assessing Officer rejected the books of accounts of the assessee and estimated the gross profit at 20% in respect of sales made in the textile business and 10% in sales made in iron and steel business. The Ld. CIT(A) sustained the action of the Assessing Officer in rejecting books of accounts and estimating of gross profit. However, the Tribunal while sustaining the rejection of books of accounts by the lower authorities as they are not reliable and at the same time held that the gross profit estimated in the iron and steel business and textile business is on higher side. The Tribunal reduced the gross profit rate by 5% in both the businesses of the assessee.”