DEEPAK GOGRI,MUMBAI vs. ITO 25(3)(2), MUMBAI

Briefly stated the facts are that, the assessee an individual filed return of income on 29.09.2011 declaring the income of ₹.11,27,890/-.

2 ITA.No.1396/MUM/2017 (A.Y: 2011-12) Shri Deepak Gogri The assessment was completed on 24.03.2014 u/s.143(3) of the Act determining the income of the assessee at ₹.28,42,200/-. While completing the assessment the Assessing Officer disallowed interest expenses of ₹.4,14,228/-. Further an amount of ₹.13,00,083/- towards unexplained expenditure u/s. 69C of the Act in respect of certain purchases made by the assessee based on the information received from the Sales Tax Department that assessee had obtained only bogus purchases without any delivery of goods. Assessing Officer initiated penalty proceedings u/s.271(1)(c) of the Act for furnishing inaccurate particulars and concealing particulars of income in respect of the above disallowance.

In the course of penalty proceedings, it was contended by the assessee that purchases made by him from various parties referred to in the Assessment Order are genuine. Assessee is into the business of wholesale traders of building materials and assessee furnished monthly purchases and sales summary, item wise input and output quantity, details of sales, date wise purchases and sales stock register, consolidated yearly item wise quantity stock and value summary with gross profit ratios. It was contended that in view of these sales the purchases made by the assessee are genuine and they are supported by delivery challans, bills, vouchers etc., However the Assessing Officer

The Assessing Officer also held that interest claim was wrongly made by the assessee as the assessee borrowed funds at 15% and advanced money to sister concerns and charged only 12% of the interest. Therefore, the difference of 3% interest incurred by the assessee is not wholly and exclusively for the purpose of earing interest u/s. 57 of the Act. Thus the Assessing Officer concluded that the disallowance of interest led to furnishing of inaccurate particulars by the assessee. On appeal the Ld.CIT(A) sustained the penalty levied by the Assessing Officer.

Learned Counsel for the assessee before us in so far as the purchases treated as unexplained expenditure is concerned, submits that the Assessing Officer has estimate the profit element in the said purchases. Sales were not doubted and since only profit element is estimated it cannot be said that there is furnishing of inaccurate particulars or concealment of income. Since an adhoc estimation of profit was made on purchases no penalty is attracted. Coming to the interest, Learned Counsel for the assessee submits that assessee has not furnished any 4 ITA.No.1396/MUM/2017 (A.Y: 2011-12) Shri Deepak Gogri inaccurate particulars of income. Assessee made a claim for interest expenses in its Books of Accounts showing complete details and simply because the Assessing Officer disallowed certain expenses as according to him are inadmissible that itself does not lead to furnishing of inaccurate particulars of income.

We have heard the rival submissions, perused the orders of the authorities below. In so far as the penalty levied on estimation of profit element on purchases is concerned, we are of the view that Assessing Officer had made only adhoc estimation of profit on certain purchases treated as unexplained expenditure. Assessing Officer did not doubt the sales made by the assessee from out of such purchases. Assessing Officer based on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [356 ITR 451] estimated the profit element in such purchases at 12.5% and by reducing the Gross Profit already declared by the assessee. In the circumstances, we hold that there is no concealment of income or furnishing of inaccurate particulars as the profit element was determined by way of adhoc estimation. Coming to the interest, the assessee furnished complete details in the return of income and made a claim and simply because the claim is denied and cannot lead to furnishing of inaccurate particulars or concealment of income. No allegation by Assessing Officer that the assessee failed to disclose the 5 ITA.No.1396/MUM/2017 (A.Y: 2011-12) Shri Deepak Gogri particulars relating to its claim in the return of income. Thus we hold that there is no concealment of income or furnishing of inaccurate particulars of income. Thus we direct the Assessing Officer to delete the penalty levied u/s. 271(1)(c) of the Act.

In the result, appeal of the assessee is allowed.