CRYSTAL CONSTRUCTIONS,MUMBAI vs. ASST CIT 21(1), MUMBAI

O R D E R

PER RAM LAL NEGI, JM

2. Brief facts of the case are that the return filed by the appellant/assessee for the assessment year under consideration was completed u/s 143 (3) by the AO determining the total income at Rs. 76,12,291/- after making addition of Rs. 10,27,676/- on account of bogus purchases. In the first appeal, Ld. CIT (A) confirmed the addition. The AO initiated proceedings u/s 271 (1) (c) of the Act for furnishing inaccurate particulars of income. In response to notice u/s 274 read with section 271 2 Assessment Year: 2010-11

(1) (c), the authorized representative of the assessee contended that the goods were actually purchased and were consumed in various projects, the payments were purchases were made through account payees cheques and the assessee has furnished all the required details, therefore, the assessee is not liable for penalty u/s 271 (1) (c) of the Act. However, the AO rejected the contention of the assessee and imposed penalty of Rs. 3,17,552/- under the aforesaid section for furnishing inaccurate particulars of income. The assessee challenged the penalty order passed by the AO before the CIT (A). However, the Ld. CIT (A) confirmed the penalty imposed by the AO. The assessee is in appeal against the said order.

3. The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:-

“Levy of penalty u/s 271 (1)(c) on account of addition on bogus purchases of Rs. 3,17,552/-. The Ld. Commissioner of Income Tax (Appeals) erred in imposing penalty on account of addition made on bogus purchases.

The levy of penalty is wrong looking to the fact of the case and deserves to be deleted.”

4. Since, there is a delay of 36 days in filing the present appeal, the assessee filed the present appeal along with the application for condonation of delay of 36 days. The Ld. counsel for the assessee submitted that the delay is on account of genuine and reasonable cause and due to the circumstances beyond control. The Ld. counsel further submitted that Mr. Rajesh Shah, who was looking after the tax matters was suffering from some bone and skin related disease. The order of Ld. CIT (A) was received on 23..06.2016 , however, on that date Sh. Rajesh 3 Assessment Year: 2010-11 Shah had gone to Hoobli, Karnatka in connection with his treatment. Sh. Shah return from Karnataka in the first week of July, 2016 and thereafter he completed the necessary procedure for filing the appeal and submitted the same. The Ld. counsel further submitted that the delay was caused due to unavailability of the partner who was looking after the affairs of the firm and well-versed with the related matters. The Ld. counsel relying on the judgment of the Hon’ble Supreme Court in the case of Collector of Land Acquisition vs. Mst. Katiji and Ors. 167 ITR 471, Balakrishnana V.M. Krishnan (1998) 7 SCC 123 and other judgments of various High Courts, submitted that the delay may be condoned and the assessee may be allowed to argue the case on merits.

5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.

6 Assessment Year: 2010-11

“7 We have carefully examined the findings recorded by the Ld. CIT (A). With the assistance of the parties, it was noted by us that assessee had filed ample evidences to discharge its primary onus. Our attention was drawn upon the invoice as well as delivery 7 Assessment Year: 2010-11 challans issued by the supplier establishing delivery of the goods purchased by the assessee. Our attention was also drawn upon the weighment slip wherein particulars of the vehicle number and weight of the material purchased was mentioned. Our attention was also drawn upon Quality Inspection Report issued by M/s Bhagwati Steel Cast Ltd., wherein chemical composition and mechanical properties purchased by assessee are narrated. This report not only contained particulars about the quality of product conformed to the Standard Rolling and Mass Tolerances but also confirmed the fact that the material was supplied to the assessee. Our attention was also drawn upon the bank statement establishing that payment was made by cheque. We have also been shown confirmed copy of account issued by the supplier to the assessee, wherein complete entries of transactions done by the assessee with the said supplier were mentioned. These evidences establish that assessee had successfully discharged its primary onus in support of his claim. However, the AO had made the addition on the ground that assessee was not able to produce the said supplier and as per the website of the Sales Tax Department, the name of the said supplier is placed in the list of hawala dealers. In our opinion, the basis adopted by the Assessing Officer for making addition or disallowance may or may not be justified as far as legality of the addition made in the quantum proceedings is concerned, but for levy of penalty these basis are indeed insufficient and not tenable in the eyes of Law. It is well established law that parameters for making the addition/disallowances are a different from levy of the penalty u/s 271 (1)(c) of the Act. There may be cases where claim of the assessee may remain unproved during the course of assessment proceedings for want of substantiation, but for the purpose of levy of penalty the AO is required to ‘disprove’ the claim of assessee. The AO must show that the claim of the assessee is bogus or false. In the facts of this as were brought before us, in our opinion, the claim of the assessee was not proved as bogus or false. The AO levied the penalty merely on the basis of his allegations which were unsupported with any cogent mataerial or evidences. We find that in the facts as have been brought out before us, the case of the assessee should not have been visited with levy of penalty. The assessee brought on record all the primary evidences as could have been adduced by the him, but AO did not place on record even a single piece of evidence to controvert or negate the evidences brought on record by the assessee. Thus, the 8 Assessment Year: 2010-11 peculiar facts of this case do not permit the AO to levy penalty on the assessee. We also find support from the judgment of Hon’ble Gujarat High Court in the case of National Textiles vs. CIT 249 ITR 125 (Guj), wherein after analyzing fundamental aspects of jurisprudence with respect to levy of penalty as envisaged in section 271 (1)(c), it was observed as under:- “The provisions of s. 68 permitting the AO to treat unexplained cash credit as income are enabling provisions for making certain additions, where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the AO. However, the addition made on this count would not automatically justify imposition of penalty under s. 271 (1)(c) by recourse only to Explanation 1 below s. 271(1)(c). In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee’s income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus i.e. conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on factor No. 1 but it has bearing only on factor No.

2. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. 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 an 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 Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee. Alternatively, treating the above, where the circumstances do not lead to the reasonable and positive inference that the assessee’s explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Even in this view of the matter, the Explanation alone cannot justify levy of penalty. Absence of proof acceptable to the Department cannot be equated with fraud or willful default. As there is no 9 Assessment Year: 2010-11 material difference between the original Explanation 1 and to harmonise it with basic principles of justice and fairness , as in the case of original Explanation. On the state of accounts and evidence in the quantum proceedings, the Department was justified in treating the cash credit as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under s. 271 (1)(c) could not have been imposed without the Department making any other effort to come to a conclusion that the cash credits could in no circumstances would have been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the Department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstances to lead to a reasonable and positive inference that the assessee’s case- that the cash credits were arranged as temporary loans, was false. The facts and circumstances are equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. Therefore, even taking recourse to Explanation 1, same circumstances or state of evidence on which the cash credit were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the Department.

Therefore, keeping in view the peculiar facts and circumstances of this case and legal position as discussed above, we find that penalty has been rightly deleted by Ld. CIT (A). No interference is called for in her order and therefore, same is upheld.”