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Income Tax Appellate Tribunal, G Bench, Mumbai
O R D E R
Per Ravish Sood, JM
The present appeal filed by the assessee for A.Y. 2009-10 is directed against the order passed by the CIT(A)-32, Mumbai, 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 23.09.2015. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:
1. Under the facts and in law, the Hon'ble CIT(A) has erred in confirming the penalty of Rs. 430,707/- levied under section 271(1)(c) of the Income Tax Act, 1961.
1.1 The Hon’ble CIT(A) erred in confirming the penalty without appreciating the submission made by the appellant.
1.2 The Hon’ble CIT(A) has erred in confirming penalty without appreciating the fact that the addition is made on estimate basis and penalty cannot be levied when the addition is made on estimate basis.
P a g e | M/s S4 Interior Vs. Asstt. Commissioner of Income Tax-25(3) 1.3 The Hon’ble CIT(A) erred in stating that the appellant has failed to produce documents to substantiate the genuineness of the said purchases. 2. Under the fact and in law, the appeal order passed by the Hon. CIT(A)-37, is not in accordance with the law. 3. Your appellant craves leave to allow amending/altering/adding /withdrawing any of the above grounds of appeal
.”
2. Briefly stated, the assessee firm which is engaged in the business as that of an interior contractor had filed its return of income for A.Y 2009-10 on 27.09.2009, declaring total income of Rs.26,33,750/-. Original assessment under Sec. 143(3) of the Act was framed on 28.12.2011, determining the total income of the assessee at Rs. 29,19,050/-. Subsequently, on the basis of information received from the DGIT(Inv.), Mumbai that the assessee had during the year under consideration procured bogus purchase bills aggregating to an amount of Rs.1,11,50,985/-, the case was reopened under Sec. 147 of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had during the year under consideration entered into hawala transactions for purchases amounting to Rs.1,11,50,985/-from the following seven parties:
Sr. No. Name of the party TIN Amt. (Rs.) 1. Dharmesh Trading 27040154641V 17,28,243 2. Balaji Traders 27070669840V 8,90,828 3. Mahavir Enterprises 27620676570V 7,90,088 4. Jain Corporation 47550632037V 16,93,168 5. Krasna Enterprises 27550630194V 24,92,451 6. Yash Impex 27790554111V 15,27,397 7. Om Enterprises 27680554123V 20,28,810 Total 1,11,50,985 On the basis of independent inquiries, it was gathered by the A.O that the aforementioned parties had not supplied any material to the assessee and had only provided accommodation entries. Further, the notices issued to the aforementioned parties under Sec. 133(6) by the A.O were in six cases P a g e | M/s S4 Interior Vs. Asstt. Commissioner of Income Tax-25(3) returned back by the postal authorities with the remarks ‘not known’, while for in one case where the same could be served, no reply was received.
4. In the backdrop of the aforesaid facts, the A.O called upon the assessee to substantiate the veracity of the purchase transactions under consideration. The assessee in order to impress upon the A.O that genuine purchases were made from the aforementioned parties, therein filed its reply and furnished certain documentary evidence in support of its claim viz. invoices, ledger accounts of parties, bank statements to show that payments to the respective parties were made by cheques etc. The A.O in the absence of sufficient documentary evidence to his satisfaction, was thus, not persuaded to accept the claim of the assessee that genuine purchases were made from the aforementioned parties. However, the A.O after deliberating on the reply and the material made available on record by the assessee, held a conviction that the goods under consideration were purchased by the assessee, though not from the aforementioned hawala parties, but from certain unknown parties operating in the open/grey parties. On the basis of his aforesaid observations, the A.O was of the view that the assessee by making the purchases from the open/grey market and supporting the same on the basis of bogus purchase bills, had thus, by so doing suppressed its profits by inflating the purchases. In the backdrop of his aforesaid conviction, the A.O made an estimated disallowance of 12.5% of the value of the purchases under consideration and consequently made an addition of Rs.13,93,873/- in the hands of the assessee. The A.O while framing the assessment also initiated penalty proceedings under Sec. 271(1)(c), on the ground that the assessee had furnished inaccurate particulars of income. The assessee accepted the aforesaid assessment, and by not carrying the same any further in appeal, allowed it to attain finality.
The A.O after the culmination of the assessment proceedings called upon the assessee to show cause as to why penalty under Sec. 271(1)(c) may not be imposed on it. It was submitted by the assessee, that as the documents which were produced in the course of the assessment P a g e | M/s S4 Interior Vs. Asstt. Commissioner of Income Tax-25(3) proceedings to substantiate the veracity of the purchase transactions under consideration viz. invoices, ledger accounts of parties, bank statements etc, were found insufficient to the satisfaction of the A.O, hence for the said reason he had made an estimated addition of 12.5% of the value of the purchases. Further, it was the contention of the assessee, that the aforesaid addition made by the A.O was accepted by him only for the sake of buying peace of mind and to avoid any further litigation. However, the aforesaid contentions of the assessee did not find favour with the A.O, and he imposed a penalty of Rs.4,30,707/- under Sec. 271(1)(c) of the Act.
3. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating at length on the contentions advanced by the assessee, was however, not persuaded to subscribe to the same and dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short ‘A.R’) of the assessee, at the very outset of the hearing of the appeal objected to the validity of assumption of jurisdiction by the A.O for levying penalty under Sec. 271(1)(c). It was submitted by the ld. A.R that as the A.O had failed to strike off the irrelevant default in the ‘Show cause’ notice, dated 19.03.2015, therefore, the assessee had remained divested of an opportunity to put forth its defence that no penalty under Sec. 271(1)(c) was liable to be imposed on in it. Alternatively, it was submitted by the ld. A.R that the addition was made by the A.O only on an estimate basis, and not on the basis of any concrete documentary evidence which would disprove the genuineness of the purchases under consideration. It was averred by the ld. A.R that though the purchase transactions which in the backdrop of insufficiency of documentary evidence had remained unproved to the satisfaction of the A.O, would justify an addition in the course of the assessment proceedings, however, the same on the said count alone would not lead to levy of penalty under Sec. 271(1)(c) in the hands of the assessee.
P a g e | M/s S4 Interior Vs. Asstt. Commissioner of Income Tax-25(3) 5. Per contra, the ld. Departmental Representative (for short ‘D.R’) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee had admittedly made bogus purchases, thus, the A.O had rightly imposed penalty under Sec. 271(1)(c), which thereafter was sustained by the CIT(A). In support of his aforesaid contention, the ld. D.R relied on the judgment of the Hon’ble Supreme Court in the case of Mak Data P. Ltd. Vs. CIT (2013) 358 ITR 593 (SC). It was further submitted by the ld. D.R that there was no estoppel in law, as regards levy of penalty, even in case where addition was made on an estimate basis. In support of his aforesaid contention reliance was placed on the following judicial pronouncements:
(i). CIT Vs. Kalindi Rail Nirman Engg. Ltd. (2014) 365 ITR 304 (Del) (ii). CIT Vs. Smt. CHandrakanta (1994) 205 ITR 607 (MP) (iii). Addl. CIT Vs. Lakshmi Industries & Cold Storage (P) Ltd. (1984) 146 ITR 492 (All) (iv). CIT Vs. Md. Warasat Hussain (1988) 171 ITR 405 (Patna) (v). A.M Shah & Co. Vs. CIT (1999) 238 ITR 415 (Guj) (vi). CIT Vs. S. Krishnaswamy & Sons (1996) 219 ITR 157 (Mad) (vii). CIT Vs. Swarup Cold Storage & General Mills (1982) 136 ITR 435 (All) (viii). CIT Vs. Chandra Vilas Hotel (2007) 291 ITR 202 (Guj)
It was averred by the ld. D.R, that as the appeal of the assessee was devoid of any force and did not merit acceptance, thus, the same may be dismissed.
We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on P a g e | M/s S4 Interior Vs. Asstt. Commissioner of Income Tax-25(3) record. We may herein observe, that as the assessee had not raised before us any ground of appeal
challenging the validity of the jurisdiction assumed by the A.O, thus, the challenge thrown by him as regards the same on the ground that the A.O had failed to strike off the irrelevant default in the ‘Show cause’ notice issued under Sec. 274 r.w.s. 271(1)(c) of the Act, cannot be admitted. We thus, refrain from adverting to and adjudicating upon the contention advanced by the ld. A.R in context of the validity of the jurisdiction assumed by the A.O for imposing penalty under Sec. 271(1)(c).
7. We have further deliberated at length on the contentions advanced by the authorized representatives of both the parties, in the backdrop of the merits of the case. We find, that admittedly it is a case where the A.O had on an estimate basis made an addition of 12.5% of the value of the unproved purchases. Further, on a perusal of the orders of the lower authorities, it emerges that the A.O had declined to accept the genuineness and veracity of the purchase transactions under consideration, for the reason, that the documentary evidence produced by the assessee to substantiate the same, were not found by him to his satisfaction. We are of the considered view, that the addition made by the A.O on an estimate basis is merely backed by an unproved claim of the assessee, and not a claim which was disproved to the hilt on the basis of irrefutable documentary evidence by the revenue. In the backdrop of the aforesaid facts, it can safely be concluded that though the unproved purchases would justify an addition in the hands of the assessee, however, no penalty under Sec. 271(1)(c) merely on the said basis could have been validly imposed. 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 P a g e | M/s S4 Interior Vs. Asstt. Commissioner of Income Tax-25(3) 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.” We are of the considered view, that the assessee in the case before us had failed to substantiate the genuineness and veracity of the purchases claimed to have been made from the aforementioned parties, by placing on record the documentary evidence as was called for by the A.O. However, we cannot also remain oblivious of the fact that as the assessee had evidenced the purchase transactions under consideration, by placing on record certain documents viz. invoices, ledger accounts of parties, bank statements etc, the authenticity of which had neither been dislodged or disproved by the lower authorities, therefore, the same in itself takes the case of the assessee beyond the realm of the penal provisions contemplated under Section 271(1)(c). We further find that the Hon’ble Supreme Court by dismissing the ‘Special leave Petition’ (SLP) of the revenue in CIT-2 Lucknow Vs. U.P State Bridge Corporation Ltd. (SLP) (Civil) (2018) 97 Taxman.com 279 (SC), had recently upheld the order of the Hon’ble High Court of Allahabad. In the aforesaid case, the High Court had observed that where a claim of expenditure is neither found inaccurate, nor could be viewed as concealment of income on the part of the assessee, then merely because the said claim was not accepted or acceptable to the revenue, that by itself would not attract penalty under Sec. 271(1)(c). Now, in the case before us, as the revenue had failed to disprove to the hilt on the basis of clinching documentary evidence, the authenticity of the claim of the assessee of having made purchases from the aforementioned parties, therefore, merely on the basis of the unproved claim of purchases, no penalty under Sec. 271(1)(c) could have been validly imposed on the assessee.
8. Before parting, we may herein observe that the reliance placed by the ld. D.R on the judgment of the Hon’ble Supreme Court in the case of Mak Data Pvt. Ltd. Vs. CIT (2013) 358 ITR 593 (SC), being distinguishable on facts, thus, will not assist the case of the revenue. In the aforesaid case, the Hon’ble Apex Court had observed that a voluntary disclosure/surrender, P a g e | M/s S4 Interior Vs. Asstt. Commissioner of Income Tax-25(3) made by the assessee in view of detection in the course of the search proceedings, would not release the assessee from the mischief of penal provisions. However, the facts in the case before us are on an absolute different footing. The addition made by the A.O in the present case is neither based on any undisclosed income admitted by the assessee, nor evidenced by any irrefutable documentary evidence. Thus, the reliance placed by the ld. D.R on the aforesaid judgment, which as observed by us hereinabove, is distinguishable on facts, would not be of any assistance in the case before us. We have also deliberated on the case laws relied upon by the ld. D.R in order to buttress his contention, that there is no estoppel as regards levy of penalty in a case where addition is made on an estimate basis. Admittedly, we though are in agreement with the aforesaid contention of the ld. D.R, but are of the considered view that the said case laws being distinguishable on facts, also not assist the case of the revenue. We find that in the case laws relied upon by the ld. D.R, either certain incriminating material was found, which conclusively evidenced the undisclosed income of the assessee or the circumstantial evidence/facts proved to the hilt that the assessee had suppressed its income. However, as had been observed by us at length hereinabove, admittedly, no clinching material had been brought on record by the revenue, which could disprove the authenticity of the purchases claimed by the assessee to have been made from the aforementioned parties, thus, no penalty under Sec. 271(1)(c) could have validly been imposed merely on the basis of unproved purchases. Thus, the aforesaid case laws relied upon by the ld. D.R, being distinguishable on facts, would also not assist the case of the revenue.
9. We thus, not being able to persuade ourselves to subscribe to the observations of the lower authorities, and being of the considered view that no penalty under Sec. 271(1)(c) could have been be imposed in the backdrop of the law and facts of the case, thus, quash the penalty of Rs. 4,30,707/- imposed by the A.O. The order of the CIT(A) upholding the levy of penalty under 271(1)(c) is set aside in terms of our aforesaid observations.