BHURARAM V. CHOUDHARY,MUMBAI vs. I.T.O., WARD-19(1)(2), MUMBAI

5. During the course of appellate proceedings before us the ld. Counsel submitted that impugned penalty levied is bad in law without proving concealment of particulars of income and assessing officer also failed to disprove the claim of the assessee that he had actually made the purchases. The ld. Counsel also placed reliance on the decision of ITAT, Mumbai in the case of Jatin Enterprises Vs. ACIT 19(2), vide ITA No. 3885/Mum/2023 dated 21.03.2024. On the other hand, the ld. D.R. supported order of lower authorities.

6. Heard both the sides and perused the material on record. The case was reopened u/s 147 of the Act on the basis of information received from investigation wing regarding bogus purchases made by the assessee during the year under consideration as discussed supra in this order. The assessing officer stated that assessee failed to prove the genuineness of the purchases made from the parties listed in the list received from the Sales Tax Department, therefore estimated the profit element embedded in such purchases at 12.5% of the purchase amount of Rs. 108,71,191/- and made addition of Rs.13,58,899/- to the total income of the assessee. During the course of assessment, the assessee has furnished detail of purchases and other documentary evidences connected with the purchases made from the said dealers as referred at para 7 of the assessment order by the assessing officer reproduced as under: “Similarly, details of corresponding sales of goods were also called for as per annexure-B and link the purchase with sales supported by bills and vouchers and reflection in the stock register of its entry and exit item by item. The assessee was also asked to produce books of accounts, bills and vouchers for verification but could not link the purchases with that P a g e | 4 to 4404/Mum/2023 Bhuraram V. Choudhary Vs. ITO, Wad 19(1)(2) of corresponding sales. The assessee produced books of accounts for verification. However, the AR of the assessee vide his written submission dated 12.03.2015 sated that The assessee has already submitted purchase details alongwith correspondence sales and bills along with stock details. The assessee firmly believes that there are valid reasons for not treating purchases as fictious and also believes that no addition on account of disallowance of purchase should be made.

The assessee has request to consider the case amicably. Assessee plead for non-levy of penalty of prosecution as consent letter is given to buy peace of mind and avoid further litigation cost, since the assessee has submitted all the documentary evidences in connection with the purchases from the said dealers. Kindly consider the same.”

However, the assessing officer has not agreed with the submission of the assessee and estimated profit element embedded in impugned purchases at 12.5% of the purchase amount of Rs.108,71,191/-. However, the ITAT has restricted such amount of disallowance to the extent of 6.5% of such purchases. The Assessing Officer had only made estimation addition of profit element involved in such amount of purchases made from the dealers which were listed by the Sale Tax Department involved in providing accommodation bills without supplying the goods. We have also perused the decision of ITAT, Mumbai as referred by the ld. counsel in the case of Jatin Enterprises Vs. ACIT-19(2) dated 21.03.2024 where on identical fact also the CIT(A) has restricted the addition to the extent of 12.5% on estimation basis. The ITAT has deleted the penalty holding that penalty levied u/s 271(1)(c) of the Act on estimation addition is unsustainable. The relevant extract of the decision of the ITAT is reproduced as under:

“4. We have heard the submissions made by rival sides. It is an undisputed fact that the Assessing Officer has made addition in the case of assessee on account of alleged bogus purchases. The Assessing Officer made addition of 100% of unproved purchases, the CIT(A) restricted the addition to 12.5% of such P a g e | 5 to 4404/Mum/2023 Bhuraram V. Choudhary Vs. ITO, Wad 19(1)(2) purchases. The addition made by the Assessing Officer and subsequently restricted by the CIT(A) to 12.5% is merely on estimations.

In the case of the assessee the supporting material as referred at para 7 of the assessment order was furnished however the addition on estimation basis of 12.5% of the purchase amount was made on the ground of extra profit earned by the assessee on such purchases because the parties were involved in issuing accommodation bills of purchases as per the information supplied by the Sales Tax Department. It is clear that in the case of the assessee the addition was made on estimation basis therefore following the decision of ITAT as referred supra we consider that penalty levied in the case of the assessee on estimated addition is not sustainable. Therefore, the penalty levied is deleted. Accordingly, both the grounds of appeal of the assesse are allowed.

7. The appeal of the assessee is allowed.

P a g e | 6 to 4404/Mum/2023 Bhuraram V. Choudhary Vs. ITO, Wad 19(1)(2) for A.Y. 2009-10 as supra in this order therefore applying the same finding as mutatis mutandis this ground of appeal of the assessee is also allowed.

ITA No. 4404/Mum/2023 (AY: 2011-12)

Order pronounced in the open court on 10.07.2024