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Income Tax Appellate Tribunal, H Bench, Mumbai
Before: Shri Manoj Kumar Aggarwal & Shri Ravish SoodShri Hitesh S. Shah
O R D E R
Per Ravish Sood, JM
1. The present appeal filed by the assessee is directed against the order passed by the CIT(A)-37, Mumbai, dated 01.02.2017, 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 29.09.2015. The assessee has assailed before us the order of the CIT(A) on the following short grounds of appeal: “
1. On the facts and the circumstances Learned CIT(Appeal) erred in confirming the penalty levied by the Ld. AO.
2. The assessee craves leave to amend, alter or modify of the above grounds of appeal.”
2. Briefly stated, the assessee who is a dealer in crude drugs etc. had filed his return income for A.Y 2009-10 on 24.09.2019, declaring total income of Rs.5,89,799/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, on the basis P a g e | Shri Hitesh S. Shah Vs. Income Tax Officer-25(2)(4) of information received from the Sales tax department through the office of the DGIT (Inv.), Mumbai, that the assessee had during the year under consideration obtained accommodation entries from certain parties involved in the business of providing bogus bills without actual delivery of goods, the case of the assessee was reopened under Sec.147 of the Act.
During the course of the assessment proceedings, the assessee was called upon by the A.O to explain the genuineness and veracity of the tainted purchase transactions which were claimed by him to have been entered into with the following parties:
Sr. No. Name of the party Amt.
Nageshwar Enterprises Rs. 76,050/- 2. Parshva & Co. Rs. 42,84,878/- 3. Daksha Enterprises Rs. 13,50,258/- 4. Mahavir Enterprises Rs. 3,12,520/- Total Rs. 60,23,706/- The assessee in his reply submitted that he had made purchases from the aforementioned parties who were small time suppliers engaged in the business of trading in crude drugs etc. In order to fortify his aforesaid claim, the assessee produced before the A.O his inventory records. Further, taking support of the fact that payment of the purchase consideration to the aforementioned parties were made by account payee cheques, the assessee tried to impress upon the A.O that genuine purchases were made from the said respective parties. The assessee in order to drive home his claim of having made genuine purchases from the aforesaid parties, placed on record the copies of purchase bills, bank statement etc. However, the AO after deliberating on the explanation of the assessee in the backdrop of the material placed on record was not persuaded to subscribe to the claim of genuineness of the aforesaid purchase transactions. It was observed by the A.O that as the assessee had failed to place on record the copies of the delivery challans evidencing the receipt of goods, details as regards the mode of transport and copies of the transport receipts for the aforesaid huge quantity of goods, thus the genuineness and veracity of the said purchase transactions had remained unproved. The A.O was also not impressed with P a g e | Shri Hitesh S. Shah Vs. Income Tax Officer-25(2)(4) the explanation of the assessee that the fact that payment made to the aforementioned parties by account payee cheques would dispel all doubts as regards the genuineness of the purchase transactions under consideration. Rather, the A.O dislodging the aforesaid claim of the assessee was of the view that such mode of payment also did form part of the hawala purchase transactions. However, the A.O taking cognizance of the fact that the correlating sales of the goods claimed to have been purchased from the aforementioned parties were shown by the assessee in his books of account, thus, observed that the receipt of goods under consideration was not in doubt. On the basis of his aforesaid observations, the A.O was of the view that the goods under consideration were purchased by the assessee from the open/grey market and not from the aforesaid hawala parties. Further, the A.O was of the view that the assessee by obtaining fictitious purchase bills from the aforesaid hawala parties had thus inflated his purchases. In the backdrop of his aforesaid conviction, the A.O disallowed 12.5% of the aggregate value of the purchases of Rs. 60,23,706/- and made a consequential addition of Rs.7,52,963/- in the hands of the assessee. The A.O while culminating the assessment, vide his order passed under Sec.143(3) r.w.s. 147 of the Act, dated 12.03.2015, therein also initiated penalty proceedings under Sec. 271(1)(c). The assessee did not assail the order passed by the A.O and accepted the addition made by him.
The A.O after the culmination of the assessment proceedings issued a „Show cause‟ notice (for short „SCN‟) to the assessee, therein calling upon him to explain as to why penalty under Sec. 271(1)(c) of the Act may not be imposed on him in respect of the disallowance of Rs. 7,52,963/- made in his hands in context of the bogus purchases booked by him in his books of account. The assessee in his reply tried to persuade the A.O that no such penalty under Sec. 271(1)(c) was liable to be imposed in his hands on the ground viz. (i) that the addition on account of bogus purchases was made on the basis of a statement of a third party; (ii) that the aforesaid addition was in itself backed by a process of estimation; (iii) that mere addition to the income would not conclusively lead to concealment of income by the P a g e | Shri Hitesh S. Shah Vs. Income Tax Officer-25(2)(4) assessee; and (iv) that necessary documentary evidence substantiating the purchase and sale of the goods under consideration placed on record during the course of the assessment proceedings proved the authenticity of the purchase transactions. However, the A.O after deliberating on the reply of the assessee did not find favour with the same. On the basis of his conviction that the assessee by furnishing inaccurate particulars of income had suppressed his income, the A.O imposed a penalty of Rs.2,64,371/- under Sec. 271(1)(c) 5. Aggrieved, the assessee assailed the order passed by the A.O imposing penalty under Sec. 271(1)(c) 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 passed by the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee took us through the facts of the case. The ld. A.R fairly conceded that the assessee in order to avoid litigation had not carried the assessment framed by the A.O in further appeal before the CIT(A), which thus had attained finality. It was submitted by the ld. A.R that though the assessee in the course of the assessment proceedings had tried to substantiate the genuineness of the purchase transactions under consideration by producing the purchase bills, inventory record and taking support of the fact that the payment of the purchase consideration to the aforementioned parties was made by account payee cheques, however, the same did not find favour with the A.O for the reason that certain specific documents viz. delivery challans, transport receipts and details as regards the mode of transport as required by the A.O could not be produced by the assessee. The ld. A.R submitted that as the assessee could not substantiate the purchase transactions on the basis of clinching documentary evidence to the satisfaction of the A.O, thus for the said reason the latter had characterized the same as unsubstantiated purchases and made an estimated disallowance of 12.5% of the aggregate value of such purchases. It was submitted by the ld. A.R that as neither the authenticity of the P a g e | Shri Hitesh S. Shah Vs. Income Tax Officer-25(2)(4) purchase bills had been disproved nor the explanation of the assessee as regards the same was dislodged by the A.O, thus the disallowance of purchases made by the A.O was merely backed by the fact that the claim of the assessee of having made purchases from the aforementioned parties had remained unproved. It was submitted by the ld. A.R that though the assessee had been made to suffer an addition/disallowance for the reason that the purchase transactions under consideration could not be proved by him to the hilt to the satisfaction of the A.O, however, as the authenticity of the claim of the assessee and the evidence led by him to substantiate the veracity of the purchase transactions had not been disproved by the revenue, hence no penalty under Sec. 271(1)(c) could have validly been imposed on him. It was further averred by the ld. A.R that as disallowance of 12.5% of the aggregate value of the purchases under consideration made by the A.O was only backed by a process of estimation, thus on the said count also no penalty under Sec. 271(1)(c) was liable to be imposed on him. The ld. A.R in order to fortify his claim that no penalty was called for in the hands of the assessee, relied on the order of a coordinate bench of the Tribunal, viz. ITAT Mumbai “H” bench, Mumbai, in the case of Shri Deepak Gogari Vs. ITO, Mumbai, (ITA No. 1396/Mum/2017, dated 23.11.2017). It was submitted by the ld. A.R that in the aforesaid case involving identical facts, the penalty imposed by the A.O under Sec. 271(1)(c) in respect of the estimated profit element pertaining to the bogus purchases made by the assessee was deleted by the Tribunal. On the basis of the aforesaid contentions, it was submitted by the ld. A.R that the order of the CIT(A) sustaining the penalty imposed by the AO under Sec. 271(1)(c) could not be sustained and was liable to be vacated.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. DR that in the backdrop of the fact that the assessee had admittedly booked bogus purchases, hence penalty under Sec. 271(1)(c) was rightly imposed by the A.O and thereafter sustained by the CIT(A).
P a g e | Shri Hitesh S. Shah Vs. Income Tax Officer-25(2)(4) 8. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We find that it remains as a matter of fact that the assessee by failing to place on record certain documentary evidence viz. copies of delivery challans evidencing the receipt of goods, details as regards mode of transport and copies of transport receipts which were specifically called for by the A.O in the course of the assessment proceedings, had thus failed to substantiate to the satisfaction of the A.O the genuineness and veracity of the purchases aggregating to Rs.60,23,706/- claimed to have been made from the aforementioned parties viz. (i) M/s Nageshwar Enterprises; (ii) M/s Parshwa & Co.; (iii) M/s Daksha Enterprise; and (iv) M/s Mahavir Enterprises. Be that as it may, we however cannot remain oblivious of the fact that the assessee by placing on record the purchase bills, inventory record and copies of bank statement evidencing payment of the purchase consideration to the aforementioned parties by account payee cheques, had thus tried to lead evidence in support of his claim of having made purchases from the aforementioned parties, which though was not found by the A.O as clinching evidence to his satisfaction. We are of the considered view that the fact that the evidence led by the assessee to substantiate his claim of purchases made from the aforementioned parties did not inspire much confidence and was rejected by the A.O, though justifiably had led to disallowance/addition in the hands of the assessee, however, the same cannot form a standalone basis for imposing of penalty under Sec. 271(1)(c). We find that the A.O observing that the assessee had failed to prove that he had purchased the goods under consideration from the aforementioned parties, had thus inferred that the same were purchased by him from the open/grey market and disallowed 12.5% of the value of such purchases, for the reason that the assessee by booking the purchases on the basis of fictitious bills obtained from the aforementioned parties, would have by so doing inflated the purchases. We are of the considered view that admittedly the assessee had suffered addition/disallowance in respect of the aforementioned purchase transactions, which in absence of clinching evidence as called for by the A.O had led to drawing of adverse inferences as P a g e | Shri Hitesh S. Shah Vs. Income Tax Officer-25(2)(4) regards the authenticity of such transactions. We are of the considered view that as the claim of the assessee of having made the purchases from the aforementioned parties could not be proved by him to the hilt, thus the same had remained unproved on his part. We are of a strong conviction that as the failure on the part of the assessee to substantiate the veracity of the purchase transactions under consideration by leading evidence to the satisfaction of the A.O had resulted into characterising of the same as an unproved claim, however as it falls short of a claim of purchases the authenticity of which had been conclusively disproved by the revenue on the basis of irrefutable evidence, hence no penalty on the said count could have validly been imposed in the hands of the assessee. We are of the considered view that as held by 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, 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. Rather, if the assessee comes up within 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 assesses case is false, then no penalty under Sec. 271(1)(c) would be liable to be imposed in the hands of the assessee.
We thus, being of the considered view that as in the case before us the claim of the assessee that it had made purchases from the aforementioned parties though could not be proved to the hilt on the basis of clinching evidence to the satisfaction of the A.O, as a result whereof the assessee had been made to suffer addition in the course of the quantum proceedings, however, as there is nothing discernible from the records which would show that the claim of the assessee of having made purchases from the aforementioned parties had been conclusively disproved by the revenue, thus no penalty under Sec. 271(1)(c) of the Act could have been imposed on him. We thus, not being able to persuade ourselves to subscribe to the observations of the lower authorities, thus set aside the order of the CIT(A) sustaining the penalty of Rs. 2,64,371/- imposed by the A.O under Sec.