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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 24/06/2024 Date of Order – 24/06/2024
O R D E R PER V. DURGA RAO, J.M.
The present appeal has been filed by the assessee challenging the impugned order dated 30/07/2021, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2010–11.
The assessee has raised following grounds:– “1. Whether in the facts and circumstances, the learned CIT(A) erred in confirming the penalty levied by the learned AO of Rs.45,00,000/- under section 271(1)(c) of the Act.
2. Whether in the facts and circumstances, the learned AO erred. in not recording proper satisfaction in the show cause notice issued u/s 274 r.w.s 271(1)(c) of the Act, dated 27/12/2017.
3. Whether in the facts and circumstances, the learned CIT(A) erred in not taking cognizance of the appellate order passed by learned CIT(A)-2, Nagpur
Alfiya Ayazali Sayyad ITA no.206/Nag./2022 in appeal against quantum proceedings wherein the additions have been restricted to 10% of total alleged bogus purchases of Rs.1,49,43,240. That penalty cannot be levied when the addition has been made on estimated basis. 4. The Appellant prays leave of the Hon'ble Tribunal to add, amend, alter any of the Grounds of Appeal.”
During the course of hearing, the Registry has pointed out that there is a delay of 303 days in filing the present appeal by the assessee. The assessee filed an affidavit wherein he has explained that the actual delay is only 60 days and regarding remaining days of 153 (+) 90 days, he stated that there was delay due to COVID–19 pandemic situation.
Having heard the learned Departmental Representative and having gone through the contents of the affidavit filed by the assessee, we are of the opinion that, for the reason stated in the affidavit, the assessee is prevented by filing the present appeal belatedly and hence, the delay is hereby condoned. Accordingly, we now proceed to dispose off the appeal filed by the assessee on merit.
Insofar as the merit of the case is concerned, the brief facts of the case are that, the assessee has made purchases from M/s. Meridian Trading Company amounting to ` 72,34,240, and from M/s. Glob Impex (India) amounting to ` 77,09,000. The Assessing Officer asked the assessee to produce documentary evidence to establish the genuineness of the purchases made by the assessee from two hawala dealers of Mumbai. The assessee the Assessing Officer, therefore, the entire sales amounting to ` 1,49,43,240, was added to the total income of the assessee. Aggrieved, the assessee carried the matter in appeal before the first appellate authority.
Alfiya Ayazali Sayyad ITA no.206/Nag./2022
The learned CIT(A) confirmed the order so passed by the Assessing Officer.
The learned Counsel for the assessee submitted that the purchases are duly recorded in the books of account maintained by the assessee. The assessee submitted copy of invoice raised by M/s. Meridian Trading Company and M/s. Glob Impex (India) and transport receipts in support of goods supplied to the assessee and all the details were filed before the learned CIT(A). He further submitted that the Assessing Officer has not doubted the sales and but only doubted the purchases and thus the addition was made. He further submitted that when the sales made by the assessee are accepted, the purchases cannot be doubted and hence penalty under section 271(1)(c) of the Act cannot be liveable.
The learned Departmental Representative supported the orders of the authorities below.
We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. We find that the assessee has made purchases from two companies namely M/s. Meridian Trading Company amounting to ` 72,34,240, and from M/s. Glob Impex (India) amounting to ` 77,09,000. The assessee filed all the details before the Assessing Officer. The assessee has also produced the copy of order passed by the learned CIT(A)–2, dated 30/09/2019, wherein the assessee has challenged the addition of ` 1,49,43,240, as bogus purchase. The learned CIT(A) in Para–5.1.4 to 5.1.5 has held as under:–
Alfiya Ayazali Sayyad ITA no.206/Nag./2022
3.1.4. The views similar to the above decision of Delhi and Kerala High Courts were expressed by the Allahabad High Court in the case of Sushil Kumar Sharad Kumar 232 ITR 588 (Alld.). Similarly, the Delhi High Court in the case of CIT Vs Sohan Singh 254 ITR 170 has held that for the purpose of penalty, matter has to be examined in the background of Explanation to section 271(1)(c). It has also been held that evidence recorded during the course of assessment proceedings, through not conclusive, are not totally irrelevant. They could be taken note of. According to the High Court what was required was that the assessee must offer an explanation which, if found to be untenable or unacceptable, then the penalty can be levied under section 271(1)(c) of the I.T. Act. 3.1.5. It is an obligatory duty cast upon a person filing the return of income to disclose all his income derived from any source under various heads and indicate the income under each head, which is chargeable to income-tax, after making the permissible deductions. Disclosure of income would be disclosure of particulars of income, which a person is duty bound to disclose in fulfillment of his statutory obligations to pay tax on the income chargeable to tax. After the return is filed under section 139(1), the assessment of tax is to be made and for the purpose of making an assessment under the Act, the ITO makes an enquiry contemplated by section 142, under which notice is issued on the person who has made the return to produce accounts, documents or furnish verified information in writing including statement of all assets, etc. However, where the AO is satisfied that the return is correct and complete, as were the wordings of section 143(1) at the relevant time, he has to assess the total income without requiring the presence of the assessee or production by him of any evidence that the return is correct and complete, he is required to issue notice enabling the assessee to produce evidence on which he may rely in support of the return. The total income in such cases of regular assessment is, assessed after hearing the evidence adduced and considering all material gathered by the AO as provided in section 143(3). It, therefore, follows that in the assessment proceedings under section 143, the AO can find ou whether the return of income is correct and complete. If he holds that the return of income is not correct or that it is not complete respect of the particulars of income which are required to be stated in the return, he will reach the correct figure of total income and determine the sum payable by the assessee or refundable on the basis of such assessment. If the income chargeable to tax has escaped assessment for any assessment year, by reason of omission or failure of the assessee to disclose fully and truly all material facts necessary for his assessment, reassessment proceeding can be initiated as provided under section 147. This again shows that full and true disclosure of income is primary obligation of the assessee.”
We also find that the Assessing Officer has not doubted the sales, but only doubted the purchases and thus the addition made by him is not justified. In the first appellate order dated 30/09/2019, which was against the quantum addition, the learned CIT(A), vide Para–5.1.4, restricted the addition
Alfiya Ayazali Sayyad ITA no.206/Nag./2022 to a reasonable percentage of 10% of purchases at ` 14,94,324 (i.e., 10% of ` 1,49,43,240) being profit element deemed to be embedded in such purchases. For better appreciation of facts, Para–5.1.4, is reproduced below:–
“5.1.4 After careful consideration of all the facts and circumstances of the case and its related case viz. Royal Enterprises, Prop, Ayaz Magdum Ali Sayyed (the husband of the appellant proprietor and in whose case also similar appellate order for AY 2009-10 was passed on 14-08-2019, by this office) merit is found in appellant's alternative contention. It is found that, the appellant had duly recorded the purchases in its books of account and maintained quantitative details. The AO has not doubted the sales made during AY 2010-11 and the closing stock shown by the appellant. There is force in appellant's submission that, the goods purchased during the year have either been sold or shown in closing stock which has not been doubted by the AO. The closing stock of AY 2010-11 has been carried forward as opening stock for subsequent year i.e AY 2011-12 out of which goods have been sold in AY 2011-12. Thus, the goods have been sold subsequently and department has not doubted the sales so made in AY 2011-12. Copy of Audited financials for AY 2011-12 were placed on record. In such a situation, it has to be decided that wherein the genuineness of sales has not been doubted, various Hon'ble Courts have held that addition if any, should be restricted to the estimated Gross Profit (GP) percentage embedded in the purchases. The appellant relied on the decision of CIT v. Simit P. Sheth (219 Taxman 85) (Guj HC), which supports her contention. 5.1.5 On carefully considering the facts and judicial precedents, the addition made by to AO is restricted to a reasonable percentage of 10% of purchases at Rs.14,94,324 (i.e 10% of Rs.1,49,43,240) being towards profit element deemed to be embedded in such purchases, as held in various judicial precedents
Since the addition has been made only on estimate basis, it cannot be said that there is a failure to disclose to and filing of incorrect particulars of income. It is a trite law that no penalty is liveable on estimated addition. However, in the present case, the Assessing Officer accepted the sales made by the assessee, but doubted the purchases and in lieu thereof the addition was made by the Assessing Officer. In our view, once the assessee maintained the books of account and all the details of purchases from whom it was made are recorded in the books of account, it cannot be said that the assessee neither concealed the income nor filed inaccurate particulars of Alfiya Ayazali Sayyad ITA no.206/Nag./2022 income. Moreover, when the sales are accepted, the purchases cannot be doubted and on this basis addition cannot be made. In our opinion, it is not a fit case to levy penalty under section 271(1)(c) of the Act and consequently the penalty imposed by the Assessing Officer and confirmed by the learned CIT(A) is hereby quashed by reversing the order passed by the learned CIT(A).
In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on 24/06/2024