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Income Tax Appellate Tribunal, MUMBAI BENCHES “H”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI ASHWANI TANEJA, ACCOUNTATN MEMBER
This appeal has been filed by the Revenue against the order of Commissioner of Income Tax (Appeals)-35, Mumbai (hereinafter called as Ld. CIT (A), in short) passed against the penalty order u/s 271 (1) (c) of the Assessing Officer on the following grounds:
(I) “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty levied u/s. 271(1)(c) of the I.T. Act. The quantum addition was not disposed of by Ld. CIT(A) on merits. The supplier was a hawala dealer and cheque payment is not conclusive by the assessee. The assessee failed to discharge onus that the purchase were genuine.” (II) “On the facts of the circumstances of the case and in law, the Ld. CIT(A) erred in relying upon judgement in the case of CIT vs. Reliance Petro Products (2010) 3 Taxman.com47 without appreciating the fact that the appellant had evaded the tax by raising bogus bills of purchases and as such the facts are different from the facts of the above case law.” (III) “The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.” (IV) “The appellant craves leave to amend or alter any ground or add a new ground”.
2. The solitary issue to be decided by us in this appeal is whether Ld. CIT (A) was justified in deleting the penalty levied by the AO. The brief backgrounds of this case is that in this case during the course of assessment proceedings the AO made addition on the purchases made from one M/s Centurian Sales Corporation to the tune of Rs. 16,75,677/- by treating it as bogus. Then, the AO initiated penalty u/s. 271 (1) (c) and issued show cause notice for imposition of penalty with respect to the same. In reply to the show cause notice issued by the AO for the imposition of penalty the assessee submitted before the AO that:
We have to draw your attention that we have produced all the evidence for purchase and payment made by account payee cheque in bank statement. You have made addition without giving us opportunity to produce the party or their confirmation or to cross examine the supplier about the refusal of supply. You have also not verified the consumption of material which is purchased from such parties. The identity of material and requirement of material to carry out the construction work with use of such material itself establishes the bonafide and genuineness of purchases. You have made the addition without verifying corroborative evidence of supply and use of material for the construction or without identifying the need of material through RCC as the RCC construction does not give any indication about the individual transaction and does not identify the mode of payment and on the contrary it confirms that the dealer is in existence and it is registered with sales tax department and the sale tax department has granted the registration only after physical verification and visit of premises of supplier. The supplier may not have paid the sale tax or VAT and hence the sales tax department deemed such supplier who is avoiding the VAT/sale tax payment. You have made addition without holding any affidavit from the supplier or any certified copy from the sales tax department or you have not produced any confirmation from the supplier as hawala transaction if you have submitted such declaration of affidavit then we can take appropriate legal action under civil law. Your penalty proceeding is against the principle of natural justice as you have not given any opportunity to cross examine the supplier or any affidavit which confirm the hawala transaction.
The AO however did not accept the submissions of the assessee and levied the penalty @ 200% of tax sought to be evaded which came to Rs. 10,35,568/-.
Aggrieved, the assessee filed appeal before Ld. CIT (A) and contested the penalty vehemently. The submissions of the assessee in a nutshell were that the assessee has submitted complete documentary evidences during the course of assessment proceedings in support of its claim. But the Assessing Officer disregarded these evidences and without bringing on record any adverse material held the purchases as bogus. But, the AO was not able to prove or establish that the purchases were bogus. Under these circumstances levy of penalty was not justified. Ld. CIT (A) considered the submissions of the assessee and examined the evidences and held that penalty was not leviable in this case and therefore he deleted the penalty. Now, being aggrieved, Revenue filed before the Tribunal.
During the course before us, Mr. M.C. Omi Ningshen, Ld. DR appearing on behalf of the Revenue vehemently supported the penalty order passed by the AO and argued that since it is a case of bogus purchases, penalty should have been confirmed by Ld. CIT (A). Thus, he requested for reversing the action of Ld. CIT (A) and confirming the penalty levied by the AO @ 200% of tax sought to be evaded by the assessee.
Per contra, Ms. Chandani Patel, Ld. Counsel of the assessee vehemently supported order of the Ld. CIT (A). It was submitted by her that the assessee submitted in detail that exhaustive evidences were filed in support of claim of purchase made by the assessee before the lower authorities. However, the AO alleged that purchases were bogus. But the allegations of the AO were without support of any adverse material having been brought on record. Neither any material was provided to the assessee indicating that purchases made by the assessee were bogus nor any opportunity of cross examination was given by the AO to the assessee. The AO merely alleged that supplier was not produced by the assessee, but mere non-production of the supplier would not prove that purchases were bogus and income was concealed. Thus, levy of penalty was not legally possible on that ground alone. She placed reliance on the following judgments in support of her argument that no penalty was leviable in the given facts of this case:
CIT v. Reliance Petroproducts (P.) Ltd. 2010] 322 ITR 158 (SC).
ACIT v. Manish Organics India Ltd. [2012] 17 taxman.com 25 (Ahmedabad). 3. Ruchi Developers v. ITO [ITA 1170/Ahd/2014, decision dated 05.06.2015]. 4. DCIT v. Rajeev G. Kalathil[[2014] 51 taxman.com 514 (Mumbai-Trib.) 5. Chempure v. ITO [2010] 40 SOT 164 (MUM) 6. HOE Leather Garments Ltd. V. Dy. Commissioner of Income Tax [2010] 39 SOT 210 (Hyderabad).
We have gone through the orders passed by the Lower Authorities. It is noted by us that Ld. CIT (A) examined all the AO as also by the assessee and thereafter held that penalty was not leviable in this case, with following observations:
I have gone through the facts of the case and the contentions of the AO and the appellant in this regard. The quantum addition has been made on the basis of information received from the Sales Tax Department. It is also a part of the office record that the appellant filed appeal against that order beyond time and the said appeal has been dismissed by this office. However, looking into the facts of the case for the purpose of imposition of penalty it is found that it is a case where the appellant has purchase expenses for which, name of the parties is given and also payments have been made through account payee cheque. It is only the enquiry made by the Sales Tax Department which has led the AO to believe that the said transaction needed to be further enquired into. Considering the ratio of the decision of Hon’ble Apex Court in the case of Reliance Petro Products I am of the considered view that since penalty proceedings are separate from assessment proceedings, in the present case it cannot be said that the assessee has furnished inaccurate particulars or has concealed income. In terms of discharging his onus, the assessee has given the details, the sellers have not been found on given addresses and that has led to additions in hands of the appellant. It cannot strictly be construed as a case of concealment on part of appellant since there is no positive finding to that effect. In light of the above decision the appeal of the appellant is allowed.
We have carefully examined the findings recorded by the Ld. CIT(A). With the assistance of the parties, it was noted by us that assessee had filed ample evidences to discharge its primary onus. Our attention was drawn upon the invoice as well as delivery challans issued by the supplier establishing delivery of the goods purchased by the assessee. Our attention was also drawn upon the weighment slip wherein particulars of the vehicle number and weight of the material purchased was mentioned. Our attention was also drawn upon Quality Inspection Report issued by M/s Bhagwati Steel Cast Ltd., wherein chemical composition and mechanical properties purchased by assessee are narrated. This report not only contained particulars about the quality of product conformed to the Standard Rolling and Mass Tolerances but also confirmed the fact that the material was supplied to the assessee. Our attention was also drawn upon the bank statement establishing that payment was made by cheque. We have also been shown confirmed copy of account issued by the supplier to the assessee, wherein complete entries of transactions done by the assessee with the said supplier were mentioned. These evidences establish that assessee had successfully discharged its primary onus in support of his claim. However, the AO had made the addition on the ground that assessee was not able to produce the said supplier and as per the website of the Sales Tax Department, the name of the said supplier is placed in the list of hawala dealers. In our opinion, the basis adopted by the Assessing Officer for making addition or disallowance may or may not be justified as far as legality of the addition made in the quantum proceedings is concerned, but for levy of penalty these basis are indeed insufficient and not tenable in the eyes of Law. It is well established law that parameters for making the addition/disallowances are a different from levy of the penalty 271 (1) (c) of the Act. There may be cases where claim of the assessee may remain unproved during the course of assessment proceedings for want of substantiation, but for the purpose of levy of penalty the AO is required to ‘disprove’ the claim of assessee. The AO must show that the claim of the assessee is bogus or false. In the facts of this as were brought before us, in our opinion, the claim of the assessee was not proved as bogus or false. The AO levied the penalty merely on the basis of his allegations which were unsupported with any cogent material or evidences. We find that in the facts as have been brought out before us, the case of the assessee should not have been visited with levy of penalty. The assessee brought on record all the primary evidences as could have been adduced by the him, but AO did not place on record even a single piece of evidence to controvert or negate the evidences brought on record by the assessee. Thus, the peculiar facts of this case do not permit the AO to levy penalty on the assessee. We also find support from the judgement of Hon’ble Gujarat High Court in the case of National Textiles vs. CIT 249 ITR 125 (Guj), wherein after analysing fundamental aspects of jurisprudence with respect to levy of penalty as envisaged in section 271(1)(c), it was observed as under:
“The provisions of s. 68 permitting the AO to treat unexplained cash credit as income are enabling provisions for making certain additions, where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the AO. However, the addition made on this count would not automatically justify imposition of penalty under s. 271(1)(c) by recourse only to Explanation 1 below s. 271(1)(c). In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee’s income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on factor No. 1 but it has bearing only on factor No.
2. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If an assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee’s case is false, the Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee. Alternatively, treating the Explanation as dealing with both the ingredients (i) and (ii) above, where the circumstances do not lead to the reasonable and positive inference that the assessee’s explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Even in this view of the matter, the Explanation alone cannot justify levy of penalty. Absence of proof acceptable to the Department cannot be equated with fraud or wilful default. As there is no material difference between the original Explanation 1 and Explanation 1 as substituted, it has to be so construed as to harmonise it with basic principles of justice and fairness, as in the case of original Explanation. On the state of accounts and evidence in the quantum proceedings, the Department was justified in treating the cash credit as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under s. 271(1)(c) could not have been imposed without the Department making any other effort to come to a conclusion that the cash credits could in no circumstances would have been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the Department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee’s case—that the cash credits were arranged as temporary loans, was false. The facts and circumstances are equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. Therefore, even taking recourse to Explanation 1, same circumstances or state of evidence on which the cash credit were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the Department. Therefore, keeping in view the peculiar facts and circumstances of this case and legal position as discussed above, we find that penalty has been rightly deleted by Ld. CIT (A). No interference is called for in her order and therefore, same is upheld.
As a result, appeal filed by the Revenue is dismissed.
Order was pronounced in the open court at the conclusion of the hearing.