DINESH SOMATMAL DHOKAR,MUMBAI vs. INCOME TAX OFFICER - 19(1)(1), MUMBAI
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SUNIL KUMAR SINGH, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI
BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI SUNIL KUMAR SINGH, JM ITA No. 3555/Mum/2023 (Assessment Year: 2010-11) ITA No. 3556/Mum/2023 (Assessment Year: 2009-10) Dinesh Somatmal Dhokar, Bldg No.1, Room No.6, Income Tax Officer 1st Floor, Vaibhav C Wing, Ward 19(1)(1) Vs. Dedarkar Compound, Mumbai-400 Tardeo Road, Mumbai-400 034 (Appellant) (Respondent) PAN No. AAAPD8605N Assessee by : Ms. Ridhisha Jain, AR : Smt. Mahita Nair, DR Revenue by Date of hearing: 14.05.2024 Date of pronouncement : 21.05.2024 O R D E R PER PRASHANT MAHARISHI, AM:
ITA No. 3556/Mum/2023 is filed by the assessee for A.Y. 2009-10 against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] dated 5th September, 2023, wherein the appeal filed by the assessee against the penalty order passed on 16th February, 2022, under Section 271(1)(c) of the Income-tax Act, 1961 (the Act), was dismissed and therefore, assessee is in appeal.
Assessee has raised following grounds of appeal :-
Without prejudice, on the facts and in law, the Hon'ble CIT (A) erred in confirming the penalty under Section 271(1)(c) of the Act without appreciating the fact that penalty cannot be levied when income is determined on estimate basis.”
The brief facts of the case shows that assessee is an individual who 03. filed his return of income on 15th September, 2009, at the total income of ₹530,780/-. The original assessment was made under Section 143(3) of the Act on 28th November, 2011, at total income of ₹625,180/-. Subsequently, based on the information received from the Director General of Income Tax, Investigation, Mumbai assessee was found to have obtained accommodation entries of bogus purchase bills amounting to ₹92,47,095/-. On hearing, reassessment order under Section 143(3) read with section 147 of the Act was passed on 19th march, 2015, determining the total income of the assessee at ₹17,81,070/- by making addition of 12.5% of alleged bogus purchases. Reassessment order was challenged before the learned CIT (A) unsuccessfully and consequently, before the ITAT. As per the order of the ITAT dated 25th October, 2021, in ITA No.2947/Mum/2019, the profit was estimated at 5%.
This penalty order was challenged before the learned Commissioner of Income-tax (Appeals), who dismissed the appeal of the assessee, confirming the levy of penalty. Therefore, the assessee has filed his appeal.
Similarly, in ITA No. 3555/Mum/2023, is also filed by the assessee 06. for A.Y. 2010-11, wherein the assessee was found, who have obtained similar bogus bills purchases of ₹82,28,687/- and therefore, the return of income filed by the assessee on 10th September, 2010, of ₹6,25,478/- was reopened by issue of notice under Section 148 of the Act and subsequently, reassessment order was passed wherein 12.5% of bogus purchases amounting to ₹10,28,586/- was added and total income of the assessee was reassessed at ₹16,54,060/- by an assessment order dated 31st December, 2015. In the reassessment order the learned Assessing Officer has initiated the penalty proceedings, under Section 271(1)(c) of the Act for furnishing of inaccurate particulars of income leading to concealment of income chargeable to tax. Subsequently, the assessee challenged the assessment order before the learned CIT (A) without any success. Order of learned CIT (A) was challenged before the co-ordinate bench who passed an order on 25th January, 2021, restricting the addition to the extent of 5% of gross profit. Meanwhile as the
In both the appeals simple issue involve is that when the addition is 07. confirmed on estimated basis on bogus purchases the penalty levied by the learned Assessing Officer and confirmed by the learned CIT (A) is sustainable or not.
As the facts and circumstances leading to the addition in both these 08. appeals are similar, the learned Authorized Representative Ms. Ridhisha Jain, submitted a detailed written submission contesting the first ground of appeal stating that both the penalty orders are not sustainable in law for the reason that in the notice under Section 274 read with section 271 of the Act issued for A.Y. 2009-10 placed at page no. 11 of the Paper Book at 19th March, 2015, and penalty notice issued under Section 274 read with section 271(1)(c) of the Act for A.Y. 2010-11 issued on 31st December, 2015, placed at page no.11 of the Paper Book does not strike off any one of the twin charges against the assessee and therefore, such penalty notices are bad in law and therefore, the penalty orders passed by the lower authorities are not sustainable. She relied upon the full Bench decision of the Hon'ble Bombay High Court in case of Mohamad Farah Mohd. Farhan A. Shaikh v. ACIT (2021) 434 ITR 1 (FB) (Bom) (HC). She referred to question no.1 at page no.56 and submitted that the issue is decided in favour of the assessee.
The learned Departmental Representative referred to the decision of the Hon'ble Bombay High Court in case of Veena Estate Pvt. Ltd. and submitted that the defect in the notice cannot prejudice the assessee.
We have carefully considered the rival contentions and perused the orders of the lower authorities. Facts clearly shows that issue of non striking of any of twin charges were not raised before ld AO or CIT (A) for both the years. It is argued before us for the first time. It is also a fact that assessee was fully aware why penalty proceedings are initiated. It is also not shown before us that what prejudiced is caused to the assessee by not striking off one of the twin charges in a notice issued u/s 274 RWs 271 (1) (c) of the Act. Thus, It is apparent that notwithstanding the defective notice, the assessee was fully aware of the reason as to why the Assessing Officer sought to impose penalty. Thus, significant features of the case in hand are that penalty proceedings were initiated during the assessment proceedings. The Assessing Officer had although issued a notice without a tick mark, it appears that both the limbs under section 271(1)(c) namely "concealment of particulars of income" and "furnishing inaccurate particulars of such income" were attracted in the facts of the case. Further At no point of time, the assessee had a
Of course, In the present case, the notices under Section 274 read with section 271(1)(c) of the Act placed in the paper book clearly shows that the learned Assessing Officer has not struck off any of the alternative twin charges. Therefore, it was contended that the issue is squarely covered in favour of the assessee by the decision of the Full Bench of Hon'ble Bombay High Court in [2021] 125 taxmann.com 253 (Bombay)/[2021] 280 Taxman 334 (Bombay) wherein in answer to question no.1, it held as under:-
“Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect.
" 41. It is a settled principle of law that any breach of the principles of natural justice cannot be addressed by a straight jacket formula. Any complaint of breach of principles of natural justice would be required to be considered in the facts of the case. When the facts of the case would demonstrate it, to be an undisputed position, that no real prejudice was caused to a party aggrieved by an order, being alleged to be breach of the principles of natural justice, the Court would certainly not interfere. Such complaint and/or a genuine grievance of the breach of principles of natural justice accompanied with the prejudice it would cause, is required to be made with utmost promptness. Any delay in making such complaint or raising a grievance would give rise to a position that such grievance is either not genuine or is belated and/or a
21.1. Therefore, the question relating to non-striking off of the inapplicable portion in the show-cause notice which is in printed format, thereby not indicating therein as under which limb of section 271(1)(c) of the Act penalty was proposed to be imposed i.e. whether for concealing the particulars of income or for furnishing inaccurate particulars of such income would go to the root of the lis. Therefore, it would be a jurisdictional issue. Being a jurisdictional issue, it can be raised before the High Court for the first time and adjudicated upon even if it was not raised before the Tribunal.
Above Decision was not on the issue that whether assessee has been prejudiced by the non striking of the one of twin limbs on which penalty can be levied. There is no quarrel that such is a jurisdictional issue and can be raised at any time. This Decision was also considered by the Honourable High court in case of Veena Textiles limited. [Supra]
Thus , In view of the above facts and binding decision of Honourable Bombay High court in case of Veena Textiles [Supra] , we hold that non striking of any limb in notice u/s 274 rws 271 (1) (c) of the Act does not come to rescue of the assessee. Hence, Ground No 1 is dismissed.
However in Ground no 2 assessee has also raised an issue that when the addition is sustained based on estimates penalty u/s 271 (1) c) is not sustainable. On similar facts, she relied up on coordinate bench
In case of ETCO Profiles Private Limited [ Supra] facts were that search and seizure operations in Etco group and it was noticed that the assessee herein had made purchases worth ₹ 3.43 crores form M/s Triton Infotech Pvt Ltd. During the course of search operation, a statement was taken from the director of Shri Triton Infotech Pvt Ltd and he confessed that he did not supply materials, but gave only accommodation bills. However, since the assessee herein had shown sale of goods and since the sale could not effected without making purchases, the AO took the view that the assessee might have purchased goods from grey market in order to avoid local taxes. Therefore, the AO disallowed of 20% of purchases and made an addition of ₹ 65,21,831/-. The AO levied penalty on the above said addition and the same was also confirmed by Ld CIT (A). Coordinate bench held that
"4. Having heard rival submissions, we are of the view that there is merit in the contentions of the assessee. Admittedly, the AO has disallowed 20% of purchases only on presumptions without establishing fully that the assessee has made purchases from grey market. Even, if it is assumed for a moment that the assessee might have purchased goods from grey market, it was not established that the amount of purchases was less than that recorded in the books of account. Under these set of facts, it has to be held that
In case of MUM Gems [Supra] also assessee was aggrieved by penalty of Rs. 5,68,596/- on account of addition made by applying GP rate of alleged bogus purchases. ld. AO treated the entire purchases of Rs. 5,57,61,124/- as unexplained. In the first appeal, ld. CIT (A) had reduced the addition by restricting it to 3% of GP rate in the entire purchases amount. The ld. AO has levied penalty u/s. 271(1)(c) of Rs. 5,68,596/- on the final addition sustained at Rs. 16,72,834/-. The ld. CIT(A) without discussing the issue on merits held that even in the case of an estimate, Explanation to Section 271(1)(c) will be attracted once there is difference between the assessed income and returned income is excess of 20%. Cordinate bench held that before the ld. AO not only during the course of assessment proceedings but also during the penalty proceedings assessee had submitted the explanation that all the purchases were from the books and payments have been made through account payee cheques and ultimately addition has been sustained on purely ad-hoc estimate of gross profit rate. From the perusal of the records, it was seen that the assessee has submitted the quantitative details of purchases along with stock register entry and corresponding export sales which was also verified from the customer appraisal report.
In the present case also ld AO made addition of 12.5 % of the Bogus purchases which was confirmed by the ld CIT (A), on appeal before ITAT it was reduced to 5 %. On this addition, whether penalty u/s 271 (1) (c) can be levied or not. Above two tribunal decision are on the identical facts where penalty has been deleted for aforesaid reasons. In these two AYs also income is estimated @ 5 % of Bogus Purchases and penalty u/s 271(1) (c) of the Act is levied on that addition. Therefore respectfully following the same , we allow ground no 2 of the appeal, reverse the orders of lower authorities and delete the penalty u/s 271 (1) (c) of the Act for both the years.
In the result, both the appeals are partly allowed.
Order pronounced in the open court on 21.05.2024.
Sd/- Sd/- (SUNIL KUMAR SINGH) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 21.05.2024 Sudip Sarkar, Sr.PS/ Dragon
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai
