H K INDUSTRIES , MUMBAI V. ITO-34(2)(1) CURRENT JURIDICTION, MUMBAI

ITA 1109/MUM/2023

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H.K. Industries, a partnership firm, filed an appeal against the penalty imposed by the Income Tax Officer following a re-assessment of their income for the assessment year 2009-10. The re-assessment was based on information from the Sales-tax Department, leading to an addition of Rs. 6,38,341 for bogus purchases. The Assessing Officer initiated penalty proceedings under section 271(1)(c) after the assessee accepted the tax liability but contested the penalty. The Commissioner of Income-tax (Appeals) upheld the penalty, leading to the appeal before the Tribunal. The Tribunal, referencing similar cases, concluded that penalties based on estimations are unsustainable and thus allowed the appeal, deleting the penalty.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 108392 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 03-07-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 04-04-2023
• Other Referred Cases: Fancy Diamonds India Pvt Ltd vs ACIT, CIT vs. Krishi Tyre Retreading and Rubber Industries, CIT vs. Sangrur Vanaspati Mills Ltd, CIT vs. Subhash Trading Co. Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 147; 271(1)(c); 143(3); 274

Judgement Text

1 ITA 1109/Mum/2023 H.K. Industries IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H”, MUMBAI BEFORE VIKAS AWASTHY (JUDICIAL MEMBER) AND MS. PADMAVATHY S. (ACCOUNTANT MEMBER) I.T.A. No.1109/Mum/2023 (Assessment year 2009-10) H K Industries Fact J-3, Bhuvalsingh Compound S.V. Road, Jogeshwari (W), Mumbai- 400 102 PAN : AAAFH7424F vs Income Tax Officer-34(2)(1), Mumbai Kautilya Bhavan, C-41 to C-43, G Block, Bandra Kurla Complex Bandra (E), Mumbai APPELLANT RESPONDENT Assessee represented by Shri Himanshu Gandhi Department represented by Smt. Usha Gaikwad, Sr.AR. Date of hearing 04-07-2023 Date of pronouncement 04-07-2023 O R D E R PER : MS PADMAVATHY S. (AM) This appeal is against the order of the Commissioner of Income-tax (Appeals)(National Faceless Appeal Centre)(in short, „the CIT(A)‟) dated 02/02/2023 for A.Y. 2009-10. The assessee raised the following grounds of appeal:- “1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming penalty of Rs. 197248 on basis of invalid notice under section 274 r.w.s. 271(l)(c) of Income Tax Act, 1961. 2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming penalty of Rs. 197248 under section 271(l)(c) of Income Tax Act, 1961. 2 ITA 1109/Mum/2023 H.K. Industries 3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in not adjudicating the grounds of appeal on merit.” 2. The assessee is a partnership firm and filed a return of income for A.Y. 2009-10 on 30/09/2009 declaring an income of Rs.2,32,053/-. Based on the information received from Sales-tax Department through the DGIT(Inv), Mumbai, the assessee‟s case was reopened and assessment order under section 143(3) read with section 147 was completed vide order dated 26/03/2015 assessing the income at Rs.8,70,394/-. The Assessing Officer, in the re-assessment order made an addition of Rs.6,38,341/- on account of bogus purchases by applying GP rate of 12.5% on the overall cost of purchases of Rs.51,06,734/-. The assessee did not file further appeal against the order of assessment passed under section 143(3) read with section 147. The Assessing Officer subsequently initiated penalty proceedings under section 271(1)(c) by issuing notice under section 274 read with section 271(1)(c). The assessee, in response, submitted before the Assessing Officer that to buy peace and to avoid prolonged litigation and to co-operate with the department, the assessee has accepted the tax liability as per the re-assessment order and, therefore, the levy of penalty was not warranted. The Assessing Officer did not accept the submissions of the assessee and proceeded to levy a penalty of Rs.1,97,248/- being 100% of tax on the addition made. Aggrieved, the assessee filed appeal before the CIT(A). The CIT(A) upheld the order of the Assessing Officer for the reason that none appeared before him in spite of granting several opportunities and based on materials available on record. Aggrieved, the assessee filed appeal before the Tribunal. 3. There is a delay of two days in filing the appeal. The Ld.AR submitted that the appeal was sent through „speed post‟ and delay has caused due to postal delay 3 ITA 1109/Mum/2023 H.K. Industries and accordingly prayed for condonation. Considering the facts submitted, we condone the delay and admit the appeal for further adjudication. 4. The Ld.AR reiterated the submissions made before the Assessing Officer to state that the addition made during the assessment is based on he gross profit rate of 12.5% on the bogus purchases and that in case where the addition is made by applying GP percentage on bogus purchases, no penalty under section 271(1)(c) is warranted. The Ld.AR in this regard relied on the decision of co-ordinate bench of the Tribunal in the case of Fancy Diamonds India Pvt Ld vs ACIT in ITA No.5384/Mum/2019 dated 17/06/2020. 5. The Ld.DR, on the other hand, supported the order of the lower authorities. 6. We heard the parties and perused the materials on record. We notice that the assessment of the assessee is reopened, based on information received from Sales- tax department through DGIT (Inv) and the addition is made by applying GP at 12.5% on the cost of purchases. The Assessing Officer initiated penalty proceedings under section 271(1)(c) for the reason that the assessee has made a claim with a conscious knowledge that the claim would not be granted and that the assessee had concealed the particulars of certain income. In this regard, we notice that the co-ordinate bench of the Tribunal in the case of Fancy Diamonds India Pvt Ld vs ACIT (supra) has considered a similar issue and held that – “9. We have heard the submissions made by rival sides and have examined the orders of the authorities below. Undisputedly, the additions made on account of bogus purchases were partially confirmed by the Tribunal. The assessee failed to discharge its onus in proving genuineness of the purchases and dealers. During assessment proceedings, the addition was made on estimation @ 12.5%. In first appeal, the addition was restricted to 3% and on further appeal to the Tribunal by the Revenue, the addition was enhanced to 6%. The entire addition right from assessment stage to the Tribunal was merely on estimations. There is no definite finding on the quantum of concealment of income. It is an accepted legal position that penalty under section 271(l)(c) of the Act levied on additions made merely on estimations is unsustainable. 4 ITA 1109/Mum/2023 H.K. Industries 10. The Hon'ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries reported as 360 ITR 580 has held that where addition is made purely on estimate basis, no penalty u/s. 271(l)(c) of the Act is leviable. Similar view has been expressed by Ho'ble Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. reported as 303 ITR 53. The Hon'ble High Court approving the order of Tribunal held that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty u/s. 271(l)(c) of the Act is not leviable. The Hon'ble Gujarat High Court in the case of CIT vs. Subhash Trading Co. Ltd. reported as 221 ITR 110 has taken a similar view in respect of penalty levied u/s. 271(l)(c) of the Act on estimated additions. There are catena of decisions by different High Courts and various Benches of the Tribunal wherein penalty levied u/s. 271(l)(c) of the Act on estimated addition has been held to be unsustainable. 11. In the result, the impugned order is upheld and the appeal of Revenue is dismissed.” 7. From the above, it is clear that it is settled by various High Courts and Benches of the Tribunal that when the addition is made based on an estimation, the penalty levied under section 271(1)(c) is unsustainable. In assessee‟s case, the Assessing Officer has made the addition based on an estimation by applying 12.5% as gross profit on the bogus purchases and, therefore, by following the various judicial pronouncements and the decision of the co-ordinate bench, we hold that the penalty levied by the Assessing Officer is not sustainable and accordingly deleted. 8. In the result, the appeal is allowed. Order pronounced in the open court at the time of hearing on 04/07/2023. Sd/- sd/- (VIKAS AWASTHY) (PADMAVATHY S) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 04 th July, 2023 Pavanan 5 ITA 1109/Mum/2023 H.K. Industries प्रतितिति अग्रेतििCopy of the Order forwarded to : 1. अिीिार्थी/The Appellant , 2. प्रतिवादी/ The Respondent. 3. आयकर आयुक्त CIT 4. तवभागीय प्रतितिति, आय.अिी.अति., मुबंई/DR, ITAT, Mumbai 6. गार्ड फाइि/Guard file. BY ORDER, //True Copy// Asstt. Registrar / Senior Private Secretary ITAT, Mumbai