DCIT CIR 1, KALYAN vs. DEMBLA VALVES LTD, BHIWANDI

The only issue in this appeal of Revenue is against the order of CIT(A) deleting the penalty levied by AO under section 271(1)(c) of the Act and the addition made by the AO on bogus purchases amounting to Rs.63,85,378/- For this Revenue as raised following ground No. 1: -

Briefly stated facts are that the Revenue raised specific information from sales tax department of Maharashtra Government that the assessee has entered into accommodation entry from the following parties in the financial year 2008-09 relevant to this assessment year 2009-10: -

The AO levied the penalty for furnishing of inaccurate particulars of income under section 271(1)(c) of the Act, despite assessee explained that these purchases has been made by making payment by account payee cheque, complete invoice bills and vouchers in respect of these purchases were filed during the assessment proceedings and even during penalty proceedings. Only lacuna in assessee’s case was that the assessee could not produce supportive bills and consumption stock register. The AO levied penalty at Rs. 21,70,391/- under section 271(1)(c) of the Act. Aggrieved assessee preferred the appeal before CIT(A).

The CIT(A) after considering the submissions of the assessee and case laws of various courts including Hon’ble Supreme Court deleted the penalty vide para 6.1 and 7 as under: - “6.1 I have carefully considered the submissions of the appellant, the observations of the AO in the penalty order, case laws relied upon by the appellant and facts of the case, therefore, I proceed to decide the appeal of the appellant. i. In this case, the addition made was on account of agreed addition in the reassessment u/s.147 read with section 143(3), even though the Department could not establish in the original assessment passed u/s.143(3) prior to information received from Sales Tax Department. The appellant claimed that the so called hawala dealers are basically absconding as they did not pay the Sales tax, and therefore, the Sales Tax Department declared them as suspicious dealers. ii. As per the submission of the appellant, it is observed that in the reassessment proceedings, the appellant had submitted copies of invoice, material inward cum Inspection Report, delivery Challans, cheque payments and clearance through bank as a proof in support of the material purchased from the parties except that the appellant could not produce the parties for verification as the parties were absconding as they had not paid sales tax and as such their names were declared as suspicious dealers. iii. The purchases were recorded in the books of accounts and there were also corresponding sales were made. The appellant further stated that the net profit in the current year has gone up to 9.62% as compared to 8.72% during the immediately preceding year. The appellant further stated that at no point of time during the assessment proceedings admitted that they were not in a position to prove the genuineness of purchases. iv. The appellant has placed reliance on various judicial decisions, therefore, some of the relevant decisions are discussed as follows – a) the Hon'ble Supreme Court in case of Sir Shadilal Sugar V/S CIT1 168 ITR 705 wherein it was held that there may be a Hundred and one reasons for not protesting and agreeing to addition but that does not follow to the conclusion that the amount agreed to be added was concealed Income. b) the Hon'ble Supreme Court in case of Dilip N. Shroff V/S Jt. CIT - 291 ITR 519 as under. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle. Before a penalty can be imposed Page 5 of 8 the entirely of the circumstances must reasonably point to the conclusion that the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or has furnished inaccurate particulars thereof. Both the "Concealment" and "Furnishing of Inaccurate Particulars "refer to deliberate act on the part of the assesse, he assessing officer Is bound to comply with the principles of natural justice before passing the order levying penalty for concealment. c) In the case of CIT vs. Manjunatha Cotton and Ginning Factory (Karnataka High Court) held that merely because the assessee agreed for addition does not lead to the inference that the said addition is on account of concealment If the assessee has offered an explanation which is not found to be false. The mere fact that the assessee agreed to pay tax and did not challenge the assessment order does not mean that his conduct is mala fide. v. The appellant further stated that the AO placed reliance in the case of Bnjmohan Vs CIT1 120 ITR 1 is not relevant in the case of the appellant in as much as the said decision was about the timing of applicability of the prevailing law at relevant time in different situations as can be appreciated by your honour from the observations of Hon'ble Supreme Court. vi. The appellant further reiterated that they had accepted for agreed additions to avoid protracted litigation and put matter at final rest. Therefore, the appellant did not appeal before the higher authorities, since the addition was on agreed basis for the aforesaid reasons. Accordingly, the penalty imposed by the AO may be deleted in the above facts and case laws relied upon. vii. On similar issue of so called bogus purchases, there are many other cases where additions were made, however, they have not agreed with the quantum additions on account of Bogus purchases. There are cases where Tribunal have granted relief by estimating N.P. on alleged bogus purchases in other cases, therefore, a more lenient and practical view is taken with regard to imposition of penalty u/s.271(1(c) in the case of the appellant. Page 6 of 8 7.0 In view of the above stated facts, I delete the penalty order passed by the Assessing Officer u/s.271(1)(c) of the I. Tax Act, 1961. In this case imposition of penalty is not justifiable as the addition was purely on agreed addition to avoid protracted litigation and to put the matter at final rest.”

We heard the rival contention and going through the facts and circumstances of the case, the above narrated facts are not in dispute. It is a fact that the assessee has made purchase and produced sales and purchase bills. Admittedly, the assessee has made payment to these parties by account payee cheque. Admittedly, these parties are register with sales tax department and sales tax department has treated these parties as Hawala entry operators. We find from the case record that the AO has never try to examine these parties or could not counter that the purchase made from these parties are bogus for the reason that the assessee produced complete bills and vouchers including travel challan for purchase of these items. Even payments are made by account payee cheques which are not negated by the Revenue. In such circumstance, whether penalty levied on agreed basis can be sustained. First of all, the assessee filed explanation before the AO during assessment proceedings and even during penalty proceedings, which has not been controverted or negated by Revenue. In such circumstances, we are of the view that the CIT(A) has rightly deleted the penalty and we confirm the same. This appeal of Revenue is dismissed.

In the result, penalty deleted by the CIT(A) is upheld and the appeal of the Revenue is dismissed.