DCIT CIR 4, THANE vs. NARYAN KUTTY KARAPPAN KUZHIEL, PALGHAR

The present appeal has been preferred by the Revenue against the order dated 20.10.2015 of the Commissioner of Income Tax (Appeals) confirming the imposition of penalty [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

The only ground raised by the Revenue is against the deletion of penalty of Rs.32,06,453/- which was wrongly stated in the ground as Rs.93,56,985/- by Ld. CIT(A) as levied by the AO under section 271(1)(c) of the Act without

The brief facts of the case are that the return was filed by the assessee on 27.09.09 declaring total income at Rs.45,23,920/-. Thereafter, the case was selected for scrutiny and assessment was completed under section 143(3) r.w.s. 147 of the Act on 31.10.13 assessing the total income at Rs.1,39,57,440/- thereby making additions to the tune of Rs.94,33,521/- on account of bogus purchases from some parties. The assessee himself, during the course of assessment proceedings after a query from the AO to prove the purchases, expressed his inability to produce the confirmations from the said parties and offered the amount for taxation to buy a peace of mind and to cooperate with the department. The assessee did not file any appeal against the assessment order and thus the assessment so framed attained finality. The AO while framing the assessment, initiated the penalty proceeding by observing as under: “6. The undersigned is satisfied that the assessee has furnished inaccurate particulars of income to the tune of Rs.94,33,521/- and hence liable for penal proceedings u/s 271(1)(c) r.w.s. 274 of the Act. Penal proceedings u/s 271(1)(c) r.w.s. 274 of the Act are initiated separately on this point.”

In the appellate proceedings, the Ld. CIT(A) deleted the penalty by observing that assessee filed before the AO all the details of purchases including supporting evidences except that the assessee could not produce the confirmations and parties for cross verification as the parties were absconding owing to non payment of sales tax after they were declared as suspicious dealer by the Sales Tax Departments and relied on various decisions in support of his conclusion.

The Ld. D.R. vehemently submitted before us that the assessee was undoubtedly resorted to availing the entries of bogus purchases to the tune of Rs.94,33,521/- from various parties which were declared as suspicious dealers by the Government of Maharashtra. The mere admission on the part of the assessee to surrender the said amount of purported bogus purchases for taxation during the course of assessment proceedings proved that assessee has resorted to availing the entries of bogus purchases from hawala dealers without buying any actual material and thus concealed the income. The Ld. D.R. heavily relied on the order of AO by submitting that it was a fit case for imposition of penalty in view of explanation -1 to section 271(1)(c) of the Act. Finally, the Ld.

The Ld. A.R. per contra submitted before us that the order passed by the AO was totally wrong and against the provision of law and relied on a series of decisions in support of his contentions. The Ld. A.R. submitted that the AO while initiating the penalty proceedings in the assessment order stated that the assessee has furnished inaccurate particulars of income to the tune of Rs.94,33,521/- and the show cause notice was also issued for furnishing of inaccurate particulars of income as apparent from the second para on page No.2 of the penalty order whereas finally the penalty was imposed for concealment of income to the tune of Rs.94,33,521/- by showing unexplained purchases. The Ld. A.R. submitted that it is not permissible under law to initiate penalty on the one of two limbs and ultimately levied the same on another limb. In another words the Ld. A.R. submitted that the AO initiated the penalty for furnishing of inaccurate particulars of income whereas imposed penalty for concealment of income which is a clear-cut violation of the principle of natural justice. Even otherwise on merit the assessee has very strong case as it was a case of bogus purchases in which the assessee during the course of assessment proceedings in order to buy peace of mind and to avoid protracted litigation, offered the amount of bogus purchases to tax. The Ld. A.R. submitted that the AO has not doubted the sales and accepted the books of the

We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the assessee was found to be a beneficiary of hawala entries amounting to Rs.94,33,521/- from various parties qua which the assessee could not file confirmations nor the parties were produced for cross examination/verification before the AO and ultimately assessee offered the said amount to tax in the assessment proceedings and consequently no quantum appeal was filed. Now the AO in the assessment order initiated penalty proceedings for furnishing the inaccurate particulars of income whereas the penalty was ultimately imposed for concealment of income. In our considered view, there was no application of mind on the part of AO in the matter of initiation and imposition of penalty. The assessee cannot be punished by way of levying penalty without affording reasonable opportunity of being heard on the charge on which the penalty is proposed to be levied. Under these circumstances, we are of the considered view that order passed by the AO is blatantly wrong for the reason that penalty was initiated for inaccurate particulars of income whereas it was finally imposed for concealment of income. Even on merit, the Ld. CIT(A) has passed very reasoned order which in our opinion does not require any inference from our side and accordingly we are inclined to affirm the same.