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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Aforesaid appeal by the assessee is against order dated 1st January 2016, passed by the learned Commissioner (Appeals), Jaipur, confirming the penalty of ` 2,06,222, imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 (for short “the Act”), for the assessment year 2006–07.
Brief facts are, the assessee a partnership firm is engaged in manufacturing, trading, import and export of precious and semi–
2 M/s. Sobhagmull Gokal Chand Jewellers precious stones. For the assessment year under dispute the assessee filed its return of income on 16th October 2006, declaring total income of ` 24,75,550. During the assessment proceedings, the Assessing Officer noticed that the assessee has shown purchases of ` 6,68,96,780 from five different parties in Surat. To verify the genuineness of aforesaid purchases the Assessing Officer issued a commission under section 131(1)(d) of the Act to the Asstt. Director of Income Tax (Inv.)–III, Surat, for conducting necessary enquiry and submit a report. As stated by the Assessing Officer, the Asstt. Director of Income Tax (Inv.)–III, Surat, conducted enquiry by issuing summons to the concerned parties and calling upon them to furnish documentary evidence relating to the transaction with the assessee. It is stated, in response to the summons issued three of the parties furnished copy of ledger account of the assessee in their books, copy of stock register, bank statement and copy of return of income filed with the Income Tax Department, Surat. The Asstt. Director of Income Tax (Inv.)–III, Surat, did not make any adverse comment in respect of these three parties. However, as regards other five parties, the Asstt. Director of Income Tax (Inv.)–III, Surat, observed that summons issued under section 131 of the Act could not be served upon them as the premises were found closed by the Inspector during his visits. Therefore, the summons was served by way of affixture. However, he further stated that reply to the summons issued with requisite details
3 M/s. Sobhagmull Gokal Chand Jewellers was filed by the concerned parties in the tapal of the office, except, M/s. Pujan Impex. It was observed, after receiving the reply and other documentary evidences, though, the Inspector again visited the addresses of the concerned parties, however, the premises were found to be closed. Thus, it was reported that the genuineness of the transaction could not be verified. On the basis of the enquiry report submitted by the Asstt. Director of Income Tax (Inv.)–III, Surat, the Assessing Officer concluded that genuineness of purchases claimed to have been made of ` 6,68,96,780 from five parties could not be established. Thus, the Assessing Officer rejected the books of account of the assessee and proceeded to estimate the profit of the assessee. The Assessing Officer observed, in the impugned assessment year, the gross profit rate shown by the assessee has decreased from 6.92% to 6.37%. Relying upon certain judicial precedents, the Assessing Officer ultimately held that 25% out of the unverifiable purchases of ` 6,68,96,780, has to be treated as profit of the assessee. Accordingly, he added back an amount of ` 1,67,24,195. The assessee challenged the aforesaid addition before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee, though, agreed with the Assessing Officer that the assessee was unable to fully establish the genuineness of purchases, hence, rejection of books of account is proper, however, he
4 M/s. Sobhagmull Gokal Chand Jewellers directed the Assessing Officer to apply gross profit rate of 7% to the alleged bogus purchases which resulted in addition of ` 6,23,780, as against the addition of ` 1,67,24,195, made by the Assessing Officer. The aforesaid decision of the learned Commissioner (Appeals) was also sustained by the Tribunal. Be that as it may, on the basis of addition sustained on account of alleged bogus purchases, the Assessing Officer initiated proceedings for imposition of penalty under section 271(1)(c) of the Act and ultimately passed an order imposing penalty of ` 2,06,222 alleging furnishing of inaccurate particulars of income. Though, the assessee challenged the imposition of penalty before learned Commissioner (Appeals), he also confirmed the penalty imposed.
The learned Authorised Representative submitted, the assessee has furnished all documentary evidences to prove the genuineness of purchases. He submitted, even in the enquiry conducted by the Asstt. Director of Income Tax (Inv.)–III, Surat, all the sellers, except one, have responded to the summons issued under section 131 of the Act and furnished the requisite information. He submitted, in such circumstances the existence of the sellers cannot be doubted. Further, he submitted, ultimately the Assessing Officer after rejecting the books of account has estimated the profit @25% on the alleged bogus purchases which was substantially reduced by the first appellate
5 M/s. Sobhagmull Gokal Chand Jewellers authority by restricting it to gross profit rate of 7%. Thus, he submitted, when the addition has been made on estimate basis, no penalty under section 271(1)(c) of the Act should be imposed.
The learned Departmental Representative strongly relying upon the observations of the learned Commissioner (Appeals) submitted, enquiry made by the Assessing Officer revealed that the genuineness of the purchases made by the assessee was not established. Therefore, imposition of penalty under section 271(1)(c) of the Act was proper.
We have considered rival submissions and perused materials on record. It is evident, in course of the assessment proceedings, the Assessing Officer to verify genuineness of purchases made by the assessee had conducted an enquiry by issuing commission to the Asst. Director of Income Tax (Inv.)–III, Surat. As per the report submitted by the concerned authority which forms part of the assessment order, it is observed that in response to the summons issued all the parties except one have submitted their reply along with required documentary evidences. It is relevant to observe, only because some of the parties were not found in their given addresses during the visit of the Inspector of Income Tax, the Asstt. Director of Income Tax (Inv.)–III, Surat, concluded that purchases are not genuine. He has not expressed any opinion whatsoever with regard to the nature of 6 M/s. Sobhagmull Gokal Chand Jewellers documentary evidences submitted by the concerned parties before him and whether after taking into consideration such documentary evidences the said transactions still cannot be held to be genuine. The business premises of the concerned party may be closed for various reasons but that alone cannot lead the authority concerned to suspect the genuineness of the parties. Further, simply on the basis of such suspicion it cannot be said that the transaction between the concerned parties and the assessee are not genuine. This is further strengthened from the fact that the Assessing Officer even after rejecting the books of account has not added the entire amount representing the alleged bogus purchases but has proceeded to estimate the profit @ 25%. Subsequently which has been substantially reduced by the learned Commissioner (Appeals) directing the Assessing Officer to confine the addition by applying the gross profit rate of 7%. Thus, as could be seen from the facts on record, the Departmental Authorities have not rejected the purchases made by the assessee all together but have doubted the source from which purchases have been made. Therefore, the addition was ultimately made on the basis of estimation. In the aforesaid circumstances, the contention of the assessee that there cannot be any inference of furnishing inaccurate particulars of income or concealment of income deserves to be accepted. In view of the aforesaid, we hold that the assessee cannot be charged with the offence of either furnishing inaccurate particulars of income or 7 M/s. Sobhagmull Gokal Chand Jewellers concealing income so as to attract the provisions of section 271(1)(c) of the Act. Accordingly, we delete the penalty imposed of ` 2,06,222. The ground raised is allowed.
In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 10.08.2018