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Facts
The Revenue filed appeals against the orders of the CIT(A) who deleted penalty levied under Section 271(1)(c) for AY 2010-11 and 2011-12. The penalty was initiated based on additions made by the AO on account of bogus purchases from hawala dealers. The CIT(A) restricted the additions and consequently deleted the penalty.
Held
The Tribunal held that penalty under Section 271(1)(c) cannot be sustained when the addition is made on an estimated basis, especially when the assessee has furnished evidence to demonstrate the genuineness of purchases. The Tribunal followed the decisions of Gujarat High Court and Rajasthan High Court.
Key Issues
Whether penalty under Section 271(1)(c) can be levied when the addition is sustained on an estimated basis?
Sections Cited
Section 271(1)(c), Section 143(1), Section 147, Section 148, Section 145(3), Section 133(6), Section 274, Section 158 BFA(2), Section 132(4)
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SUNIL KUMAR SINGH, JM
and The Income tax officer 41(3)(3), Mumbai [ the ld. AO ] against the appellate orders passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] for A.Y. 2010-11 and 2011-12 dated 3/10/2023 and 4/10/2023 respectively, wherein the appeal filed by the assessee against the penalty orders passed under Section 271(1)(c) of the Income-tax Act, 1961 (the Act) dated 15th March, 2022, by the Asst. Commissioner of Income Tax, National Faceless Assessment Grounds in for A.Y. 2010-11 is as 02. under:
Whether the Ld. CIT(A) was right in holding that penalty levied is not sustainable when the purchases. were held to be tainted/bogus and it was only the profit out of this which was estimated?
2. "Whether the Ld. CIT(A) was right in holding that penalty levied is not sustainable when the purchases were held to be tainted/bogus, and it was only the profit out of this which was estimated?"
3. "Whether the Ld. CIT(A) erred in holding that penalty levied is not sustainable as the addition was made on estimated basis, whereas the Hon'ble High Court of Delhi in the case of JRD Stock Brokers (P.) Ltd. Vs Commissioner of Income Tax - II (2015) held that levy of penalty on estimated basis is justified if on basis of material discovered, there is determined to be additional income that radically changes the character of income originally declared?"
"Whether the Ld. CIT(A) erred in holding that penalty levied is not sustainable as the addition was made on estimated basis, whereas the Hon'ble High Court of Patna in the case of CIT vs Md. Warasat (1987) held that
5. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary."”
Grounds in A.Y. 2011-12 is as 03. under:-
Whether the Ld. CIT(A) was right in holding that penalty levied is not sustainable when the purchases were held to be tainted/bogus, and it was only the profit out of this which was estimated?
"Whether the Ld. CIT(A) was right in holding that penalty levied is not sustainable when the purchases were held to be tainted/bogus, and it was only the profit out of this which was estimated?"
"Whether the Ld. CIT(A) erred in holding that penalty levied is not sustainable as the addition was made on estimated basis, whereas the Hon'ble High Court of Delhi in the case of JRD Stock Brokers (P.) Ltd. Vs Commissioner of Income Tax - II (2015) held that levy of penalty on estimated basis is justified if on basis of material discovered, there is determined to be additional income that radically changes the character of income originally declared?"
We will first state the facts of A.Y. 2010-11 and facts for A.Y. 04. 2011-12 are identical except the amount of addition and levy of penalty.
For A.Y. 2010-11, assessee ,proprietary of M/s Anish 05. Enterprises, filed return of income on 13thOctober 2010, at a total income of ₹4,49,570/-, for his trading business in trading in chemical and rubbers. This return was processed under Section 143(1) of the Act.
Subsequently, the information was received from Maharashtra 06. Sales Tax Department about purchase of the assessee amounting to ₹1,29,11,206/- from hawala dealers. This information was forwarded to the learned Assessing Officer by DGIT Investigation, Mumbai. As the assesseewas found to be beneficiary of such bogus purchase,the case of the assessee was reopened by issue of notice under Section 148 of the Act dated 18thFebruary 2015. The reassessment proceedings culminated into reassessment order passed on 19thFebruary,
During reassessment proceedings the assessee submitted the stock register, sales invoice details and purchase invoices along with ledger accounts etc. stating that payments have been made through account payee cheques. The notice under Section 133(6) of the Act, sent by the learned Assessing Officer to those bogus hawala dealers wasreturned by the postal authorities with remark „undelivered‟.
Based on this the total income of the assessee was determined 08. at ₹16,11,570/-. The learned Assessing Officer issued notice under Section 274 of the Act initiating penalty proceedings under Section 271(1)(c) of the Act for filing inaccurate particulars of income.
The assessee preferred the appeal before the learned CIT (A) 09. who restricted the addition to the extent of 5% of the total bogus purchase vide order dated 28thJune, 2019.
In penalty proceedings the learned Assessing Officer 010. considered the explanation of the assessee to drop the penalty proceedings under Section 271(1)(c) of the Act as in identical circumstances, the addition was made for A.Y. 2009-10 and The learned Assessing Officer rejected such explanation and 011. stated that as assessee has furnished inaccurate particulars of income, as incorrect facts were furnished, penalty is leviable. Accordingly, considering addition confirmed to the extent of ₹6,45,560/-, ld. AO levied penalty under Section 271(1)(c) of the Act of ₹1,94,284/- for furnishing of inaccurate particulars of income.
The assessee challenged the penalty order before the learned 012. CIT (A). He considered the written submission furnished by the assessee, wherein it was stated that on estimated addition no penalty can be levied. The learned CIT (A), after discussion and considering the judicial precedents relied upon, held that under facts and circumstances it is evident that addition is made on the estimate basis in this case. He held that in view of several judicial precedents of the co-ordinate Benches, the penalty levied is not justified as addition is made on estimated basis. Therefore, he allowed the appeal of the assessee and directed the learned Assessing Officer to delete the penalty of ₹1,94,284/-.
The learned Assessing Officer aggrieved by this appellate 013. order dated 4thOctober 2023, is in appeal before us.
The learned Departmental Representative stated that the 014. amount of income is generated out of the bogus purchases from hawala dealers and profit of the assessee was estimated
The learned Authorized Representative, Ms. Kinjal Bhuta, referred to a paper book containing 48 pages and it was submitted that. i. Identical order of assessment was passed for A.Y. 2009-10, where also the identical penalty proceedings were initiated. However, vide order dated 18thMarch2019, the learned Assessing Officer himself dropped the penalty proceedings for A.Y. 2009-10. She also referred to the office note in the assessment order for A.Y. 2010-11, wherein this fact is also mentioned. She submitted that as there is no change in the facts and circumstances in the case of the assessee for A.Y. 2010-11 and 2011-12, the learned Assessing Officer should not have levied the penalty proceedings under Section 271(1)(c) of the Act on the principles of consistency. ii. She further referred to the ITAT order in the case of the assessee for A.Y. 2009-10, dated 14thDecember 2018, wherein in paragraph no.6, the income of the assessee is determined on the basis of estimates. iii. She further referred to the order of the learned CIT (A) dated 28thJune 2019, for A.Ys. 2010-11 and 2011-12, wherein the iv. She also referred to the decision of the co-ordinate Bench in the case of ITO Vs. Stripco Springs Pvt. Ltd.in dated 6thApril 2021, and also of V.K. Ispat & Alloys Vs. ITO in ITA No.2325 & 2326/Mum/2022 dated 24thJanuary 2023, wherein on identical basis the penalties were deleted for the reason when the additions were made on estimated basis it does not entail penalty under Section 271(1)(c) of the Act. v. She further stated that the decision cited by the learned Departmental Representative in case of JRD Stock Brokers Pvt. Ltd. Vs. CIT dated 4th March, 2015, of Hon'ble Delhi High Court does not apply to the facts of the case as it was a case of penalty levied under Section 158 BFA (2) on undisclosed income determined on the basis of estimation on the application of gross credits to consider as turnover. She submitted that in this case, the facts are distinguishable. vi. On the decision of CIT VS. Warasat Hussain dated 10thSeptember 1987, the issue was with respect to the concealment of capital gain. She further referred to paragraph no.16 of the order and submitted that in that case the assessee did not produce necessary materials about capital gains, which were in possession of the assessee to dislodge the view of the Income Tax Officer. She submitted that in the present case the vii. In view of these facts, she submitted that the decision of the co-ordinate Bench in case of V.K. Ispat & Alloys (supra) squarely covers the issue which is on identical facts in favour of the assessee. Therefore, the order of the learned CIT (A) does not have any infirmity.
viii. She also raised additional issue that learned Assessing Officer challenges penalty orders, but they are below the requisite monetary limit and therefore, as per CBDT Circular 2/18 dated 7thNovember 2018, amended further on 20thAugust 2018, these are low tax effect penalty appeals which could not have been preferred by the learned Assessing Officer. For this proposition, she also relied on the decision of Stripco Springs Pvt. Ltd.(supra), wherein in paragraph no.10 the co-ordinate Bench has held that the penalty orders on such facts could not have been agitated by the Revenue before ITAT and only exception is with respect to the quantum addition.
On the argument that these are low tax effect appeal, ld. DR 016. submits that penalty orders arising out of the quantum addition which is covered by exception are also covered. She submitted that it could not be the case that on addition revenue can prefer appeal and on penalty on the same addition, revenue cannot appeal. If this view is taken then despite the addition confirmed by lower authorities, but penalty deleted, We have carefully considered the rival contentions and 017. perused the orders of the lower authorities. The facts show that assessee is allegedly found to have purchased invoices without purchase of goods from hawala dealers as noted by Maharashtra sales tax Authorities intimated to DGIT (inv), Mumbai who in turn intimated to the ld. AO. Based on this, the learned Assessing Officer rejecting the books of accounts u/s 145 (3) of the Act estimated income to the extent of 9% of such bogus purchases for both these years. On appeal, the learned CIT (A) restricted the addition to the extent of 5%. On such addition sustained at the rate of 5% of the bogus purchases, the penalty under Section 271(1)(c) of the Act was levied for both the years. The learned Assessing Officer levied the penalty , on appeal, were deleted by the learned CIT (A) holding that on estimated addition the penalty under Section 271(1)(c) of the Act cannot be sustained.
It is a trite law that cannot be universal law that whenever the 018. addition was made on the basis of estimate, penalty under Section 271(1)(c) of the Act cannot be levied. In a case, where addition is made on the basis of information with the learned Assessing Officer that the assessee has purchased merely the invoices from the buyers and assessee does not furnish any information, then perhaps even on the estimated addition, penalty may be levied, if it falls into the specified offence of Section 271(1)(c) of the Act. But the situation would be different, if there is an allegation about bogus Honourable Gujarat High court in RAMESHCHANDRA A SHAH 019. VERSUS ASSTT. CIT, CIRCLE 3 OR HIS SUCCESSOR TAX APPEAL NO. 800 of 2008 dated August 10, 2016, on the question of law " Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal, was right in law in confirming the penalty under Section 271(1)(c) of the Income-tax Act, 1961 in respect of the addition of ₹ 2,09,150/- being 25% of purchases of ₹ 8,36,601" has held that :- "4. Learned Counsel for the appellant has drawn the attention of this Court to the decision of this Court in the case of Vijay Proteins Ltd. v. Commissioner of Income-
“Insofar as T.A. No.243/2002 is concerned, the question of law raised therein is already concluded by a decision of this Court rendered in T.A. No.461/2000 & allied matters, as stated herein above. Paras 6 & 6.1 of the said decision are relevant for our purpose, which read thus.
”6. Heard both the parties and gone through the material available on record. In the instant case, we are of the opinion that assessment made is just and proper. The statements made in the affidavits are not based on any record or corroborated with cogent evidence. The presumption raised by the papers which were seized from the custody of the appellant had not been rebutted. Therefore, the issues raised in appeals no. 461 to 464 of 2000 are required to be answered in the affirmative and against the assessee.
6.1 So far as the issue involved in appeals no. 833 to 836 of 2005 is concerned, in view of the decisions cited hereinabove by learned advocate for the appellant we are of the opinion that the penalty has been wrongly imposed under Section 271(1)(c) of the Act. In the case of Krishi Tyre Retreading and Rubber Industries (supra), it
18.1 At this juncture, it would be relevant to refer to a decision of the Apex Court in the case of Asst. Commissioner of Income-tax v. Gebilal Kanhaialal, HUF, [2012] 348 ITR 561 (SC) wherein, it has been held that the only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income up to the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement u/s.132(4) and thus, the assessee was entitled to immunity under clause (2) of Explanation 5 to section 271(1)(c).”
Learned Counsel for the appellant has also placed reliance on the decision of this Court in the case of Vijay Proteins Ltd. v. Commissioner of Income-tax in Income Tax Reference No.139/1996 with Tax Appeal No.243/2002 wherein the question of law was answered
On the other hand, learned Counsel for the respondent – Department has submitted that in view of the bogus purchases, the order of penalty may be confirmed.
We have heard learned Counsel for the respective parties and perused the records of the case. Taking into consideration the order the Tribunal, the evidence which has surfaced on record as well as the decision of this Court in the case of Vijay Proteins Ltd. v. Commissioner of Income-tax (supra), we are of the view that the issues raised in this Appeal are to be answered in favour of the assessee and against the Department."
Thus, respectfully following the orders of the Honourable 020. Gujarat High court and Honourable Rajasthan high court in Commissioner of Income-tax Versus Krishi Tyre Retreading and Rubber Industries - 2014 (2) TMI 21 - RAJASTHAN HIGH COURT , the appellate orders of the ld. CIT (A) deleting the penalty u/s 271 (1) (c) of The Act , are confirmed.
Coming to the argument of The Ld. AR that the learned 021. Assessing Officer could not have filed the appeal before the Tribunal in view of low tax effect in case of the penalty proceedings as exceptions mentioned are only with respect to The circular provides that :- 022.
"10. Adverse judgmentsrelating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect: - (e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI / ED / DRI / SFIO / Directorate General of GST Intelligence (DGGI).” Thus, penalty orders are adverse judgments relating to 023. issues of the proceedings where addition is based on information from specified authority. Therefore, revenue could file an appeal on the issues of addition , as well as penalty or any other issue related to additions made based on specified information from specified agencies. Hence, we reject the argument of the ld. AR that these are low tax effect appeals, which could not have been preferred by the ld. AO.
However, as we have already held that this issue is squarely covered in favour of the assessee by the decision of the Honourable Gujarat and Rajasthan High courts, and co- ordinate Bench holding that if income is estimated, penalty u/s 271 (1) ( c) is not sustainable. Facts in those cases and in the In the result, the appeals of the learned Assessing Officer for 025. both the years are dismissed.
Order pronounced in the open court on 27.05.2024.