FORBES PHARM CHEM TECHNOLOGIES,MUMBAI vs. NATIONAL FACELESS ASSESSMENT CENTRE, DELHI, DELHI

Brief facts of the case are that the assessee filed its return of income on 17.09.2010, reporting total income at Rs. 12,710/-. Case if the assessee was reopened u/s. 147 of the Act on the basis of information received from the Investigation Wing of the Department, which revealed that assessee had taken accommodation bills for purchase through parties declared as hawala operators by the Maharashtra Sales Tax Department. After examining the details filed by the assessee and considering the submissions made, assessment was completed u/s.143(3) r.w.s. 147 vide order dated 10.11.2015 wherein addition of Rs. 10,13,496/- was made being 12.5% of Rs.81,07,970/- held as unproved/unexplained purchases. Consequently, penalty proceedings u/s.271(1)(c) were initiated by issuing a notice u/s.274 r.w.s.271(1)(c) of the Act.

In the quantum appeal, before the ld. CIT(A) the addition made was reduced to Rs.4,86,478/- by adopting 6% instead of 12.5% on the unproved/unexplained purchases of Rs.81,07,970/-. Assessee took up the matter before the Co-ordinate Bench of ITAT, Mumbai in appeal No. ITA 5473/Mum/2018 which was dismissed vide order dated 11.09.2019 by confirming the percentage adopted by ld. CIT(A) of 6%.

Before us, ld. Counsel for the assessee contended that it is a case of estimation of arriving at income component in the purchases treated as unproved/unexplained which initially was taken at 12.5% by the ld. Assessing Officer and was subsequently reduced to 6% by the ld. CIT(A) and confirmed by the coordinate bench. He thus, submitted that addition made at the rate of 6% of alleged bogus purchases is on account of difference of opinion, there being no concealment of particulars of income or filing of inaccurate particulars of income by the assessee. Ld. Counsel also asserted that assessee has disclosed all the facts before the authorities below. He thus claimed that penalty imposed is on an addition made on an estimate basis by applying 6%.

We have heard the rival contentions and perused the material on record and have taken note of the fact about the decision of Co-ordinate Bench in the quantum appeal whereby to meet the ends of justice, addition was sustained at 6% of the alleged bogus purchases. Before us, ld. Counsel for the assessee had submitted that in a case of estimation of income/disallowance, no penalty u/s. 271(1)(c) is warranted. In the present case, the explanation of the assessee though not accepted in its entirety, there is no material on the basis of which it would be held that the same was not bonafide. In other words, the explanation given by the assessee has not been disproved. 7.1. It is a settled position that on the addition /disallowance made on an estimate basis, no penalty u/s. 271(1)(c) is leviable. For the purpose of levying penalty under 271(1)(c), the AO has to clearly prove that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of his income. Considering the undisputed fact that addition on which the penalty has been imposed is on an estimate basis i.e. 6% of bogus purchases, we are of the view that penalty so imposed u/s. 271(1)(c) is not justified. Accordingly, we delete the penalty imposed on the assessee. Thus, the ground no.1 taken by the assessee is allowed. 7.2. Assessee has also challenged vide ground no.2 on the defective notice issued by the Assessing Officer for initiating penalty proceedings wherein, specific charge has not been created against the Forbes Pharm Chem Technologies, AY 2010-11 assessee. Since we have already deleted the penalty imposed in terms of our above observations and findings on the merits of the case, the legal issue so raised is left open and not adjudicated upon.

In the result, appeal of the assessee is allowed.