EVERSHINE BUILDING CONTRACTOR P.LTD,MUMBAI vs. DCIT 9(2)(2), MUMBAI

The present appeal has been preferred by the assessee against the order dated 26.12.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.

The only common issue raised by the assessee in the various grounds raised is in respect of confirmation of penalty by Ld. CIT(A) as made by the AO under section 271(1)(c) of the Act of Rs.1,17,374/- towards hawala purchases despite the fact that assessee agreed to the addition during the course of assessment proceedings.

The facts in brief are that the assessee is in the business of construction. The AO ,on receipt of information from the Sales Tax Department, Government of Maharashtra that assessee has made bogus purchases/hawala transaction from two parties namely M/s. N.B. Enterprises & Gopikrishna Trading Co. of Rs.49,920/- and Rs.3,05,760/- respectively during the year. On the basis if said information the case of the assessee was reopened under section 147 of the Act after recording the reasons and ultimately the assessment was completed vide order dated 20.03.2015 passed under section 43(3) read with section 147 by making a disallowance of Rs.3,55,680/-. Thereafter, assessee was issued a show cause notice dated 07.08.2015 as to why the penalty under section 271(1)(c) of the Act should not be imposed. The AO finally imposed the penalty equal to 200% of the tax sought to be evaded to the tune of Rs.1,17,374/- vide order dated 28.09.2015 passed under section 271(1)(c) of the Act after rejecting the contention of the assessee that the all the bills and vouchers , payments details and other information as desired by the AO were produced.

In the appellate proceedings Ld. CIT(A) confirmed the penalty as imposed by the AO by observing and holding as under: “6.10. Thus from the careful reading of the provisions of section 271(1)(c) together with explanation-1 thereunder and the various available judicial pronouncements, as discussed in above paras, no proof of mensrea is required for levy of such civil penalty. The purchases were made by the appellant company, the onus was on the appellant to prove the genuineness of the expenses claimed. The appellant company failed to substantiate its claim of purchases as genuine. Due to failure of the appellant company to prove that purchases made were 3 M/s. Evershine Building Contractor Pvt. Ltd. genuine, the Ld. A.O. initiated and imposed the penalty. During appellate proceedings also the appellant submitted that neither the latest postal addresses of the above mentioned parties were available nor it was in a position to file a confirmation. In view of it, it is clear that the appellant has failed to discharge its onus of proving the genuineness of the expenses claimed in its P&L A/c. The default committed by the appellant company is covered by Part B of Explanation I to Section 271(1)(c). The appellant has not only filed inaccurate particulars of its income but also concealed its taxable income by inflating the purchases. It is a clear cut case of concealment of income, therefore, penalty of Rs.1,17,374/- imposed by the A.O. is confirmed.”

The Ld. A.R. vehemently submitted before us that the order of Ld. CIT(A) confirming the imposition of penalty under section 271(1)(c) of the Act was wrong for various reasons . The Ld. A.R. submitted that the moment the assessee was confronted with the issue of bogus/hawala purchases by the assessee from two parties, the assessee submitted before the AO that the material was in fact purchased and the necessary evidences in the form of purchase bills and payments through banking channels were duly proved before the AO and therefore prayed that an addition to the tune of 5% should be made in order to tax the gross profit which the assessee may have made on the said purchases. The Ld. A.R. submitted that in view of the carried forward losses to the tune of Rs.1,06,68,974/-, no quantum of appeal was filed against said order. The Ld. A.R. also referred to the decision of the co- ordinate Bench wherein only fraction of addition is made towards GP of the total bogus purchases ranging between 2 to 12.5% whereas in the assessee’s case 100% of the purchases were assessed to tax. It is also the fact that the assessee has proved that material was duly received and payment was duly made through banking channel. The Ld. A.R. submitted that 4 M/s. Evershine Building Contractor Pvt. Ltd. under these circumstances the imposition of penalty is highly unfair for the reason that the assessee has in its possession all the evidences to substantiate the purchases especially when the payments were made through banking channel. The mere fact that the suppliers were declared as hawala operator and could not be found on the addresses would not automatically lead to the conclusion that there was concealment of income or furnishing of inaccurate particulars of income. The Ld. A.R. submitted that the assessee has made the claim under bonafide belief and the same was on the basis of documentary evidences but same remained unverified for the want of confirmations from the suppliers whereas the necessary evidences such bills vouchers , payment details were furnished and therefore the penalty as imposed by the AO and confirmed by the Ld. CIT(A) should be deleted. The Ld. A.R. relied on the decision of the co-ordinate Bench in ITA No.6617/M/2014 for A.Y. 2010-11 order dated 02.05.2017 in defense of his arguments and prayed before the Bench that in view of the ratio laid down by the co-ordinate Bench, the penalty should be deleted.

The Ld. D.R., on the other hand, relied on the order of authorities below and submitted that since the assessee has failed completely to prove the genuineness of the purchases more so when the suppliers were declared as hawala dealers by the Sales Tax Department, Government of Maharashtra, the penalty was rightly imposed by the AO. Similarly, the Ld. CIT(A) after considering all the records and contentions of the

We have heard the rival submissions of both the parties and after perusing the material on record, we find that the assessee was found to have made the purchases from two suppliers amounting to Rs.3,55,680/- which were declared as hawala operators by the Sales Tax Department, Government of Maharashtra. The purchases could not be confirmed from the said suppliers as they were not found on the addresses given by the assessee. However, the assessee has produced before the AO the bills, vouchers, bank statements evidencing the payments through banking channel etc. which did not find favour with the AO and ultimately the said purchases were treated as non genuine and added entire purchases to the income of the assessee by rejecting the contentions put forth by the assessee to assess the said purchases at the rate of 5%. The assessee did not file any quantum of appeal against the order of AO in view of the huge carry forward losses from the earlier year to the tune of Rs.1,06,68,947/-. Now the question before this Bench is whether the penalty could be imposed under such scenario when the assessee possessed some evidences to prove the claim of the assessee qua the material purchased and used in the construction of building. We further observe that the assessee has placed before the AO the copies of bills, vouchers, other evidences in the form of bank statements to corroborate the said purchases. So under these circumstances and facts the imposition of penalty would not be justified as the assessee has in its possession some

Since the facts of the assessee are materially same as that of the case referred to hereinabove, we, therefore, following the ratio laid down by the co-ordinate Bench hold that penalty is not justified in this case and accordingly direct the AO to delete the penalty.

In the result, appeal of the assessee is allowed.