ITO-32(2)(5), MUMBAI V. PRAVIN DAYALDAS GANDHI, MUMBAI

ITA 1547/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5374 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Capital asset converted into stock in trade; Tax effect; Set aside
• Section: 271(1)(c); 69C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA (AM) & SHRI RAVISH SOOD ( JM) I.T.A. NOS. 1547 &1548/MUM/2020 (ASSESSMENT YEARS : 2010-11 & 2011-12) ITO - 32(2)(5) ROOM NO.719, 7 TH FLOOR, KAUTILYA BHAVAN C-41 TO C-43 G BLOCK BKC BANDRA(E) MUMBAI-400 051 VS . PRAVIN DAYALDAS GANDHI A/2, BLOCK NO.24 JAY PUNIT NAGAR,S.V.ROAD BORIVALI(W) MUMBAI-400 092 PAN : ACBPG2335H ( APPELLANT ) ( RESPONDENT ) & I.T.A. NOS. 1549 & 1550/MUM/2020 (ASSESSMENT YEARS : 2010-11 & 2011-12) ITO - 32(2)(5) ROOM NO.719, 7 TH FLOOR, KAUTILYA BHAVAN C-41 TO C-43 G BLOCK BKC BANDRA(E) MUMBAI-400 051 VS . PRAVIN DAYALDAS GANDHI HUF A/2, BLOCK NO.24 JAY PUNIT NAGAR,S.V.ROAD BORIVALI(W) MUMBAI-400 092 PAN : AABHG7408M ( APPELLANT ) ( RESP ONDENT ) ASSESSEE BY NONE DEPARTMENT BY SHR EEKALA PARDESHI DATE OF HEARING 0 8 /09 /2021 DATE OF PRONOUNCEMENT 20 /09 /2021 O R D E R PER BENCH :- THESE ARE REVENUES APPEALS DIRECTED AGAINST RESPEC TIVE ORDERS OF LEARNED CIT(A) FOR THE CONCERNED ASSESSMENT YEARS. 2. SINCE THE ISSUES ARE COMMON AND CONNECTED AND TH E APPEALS WERE HEARD TOGETHER, THESE HAVE BEEN CONSOLIDATED AND DISPOSED OFF TOGETHER FOR THE SAKE OF CONVENIENCE. PRAVIN DAYALDAS GANDHI 2 3. SINCE, GROUNDS ARE IDENTICAL, WE ARE REFERRING TO GROUNDS FROM ITA NO. 1547/MUM/2020 FOR AY 2011-12. THE GROUNDS OF APPEAL ARE READ AS UNDER:- 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (AJ ERRED IN DELETING THE PENALTY LEVIED BY THE AO U/S 271(1(C) OF THE INCOME TAX ACT, 1961, OF RS. 3,57,078/- WITHOUT APPRECIATING THE FACT THA T THE ASSESSING OFFICER HAS CORRECTLY HELD THAT THE ASSESSEE HAS FAILED TO SUBS TANTIATE THE TRANSACTIONS CLAIMED IN ITS RETURN OF INCOME THEREBY EVADED TAXES TO THA T EXTENT.' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ACT OF ASSESS EE CLEARLY FALLS WITHIN THE AMBIT OF PROVISIONS OF EXPLANATION-1 TO SECTION 271(L)(C) OF THE ACT AS THE ASSESSEE HAD FAILED TO OFFER AN EXPLANATION OR WHICH WAS FOUND BY THE A .O. TO BE FALSE.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY LEVIED BY THE A.O. U/ S 271(L)(C) OF THE I.T. ACT, 1961 OF RS. 3,57,078/- WITHOUT APPRECIATING THE FACT-THAT T HE ASSESSEE CLAIMED BOGUS PURCHASES IN ITS RETURN OF INCOME THEREBY MAKING HI MSELF LIABLE FOR PENALTY U/S 271(L)(C) OF THE I.T. ACT, 1961.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE HONBLE ITAT IS REQUESTED TO ENTERTAIN THIS APPEAL THOUGH THE TAX EFFECT IS B ELOW THE MONETARY LIMIT PRESCRIBED IN THE CBDT CIRCULAR NO.17/2019 DATED 08.08.2019 R.W. CIRCULAR NO. 3/2018 DTD. 11.07.2018 AS AMENDED ON 20.08,2018 AS THE CASE FAL LS IN THE EXCEPTION PROVIDED IN PARA 10(E) OF THE SAID CIRCULAR IN AS MUCH AS THE A DDITION IS BASED ON INFORMATION RECEIVED FROM EXTERNAL SOURCES IN THE NATURE OF LAW ENFORCEMENT AGENCIES, NAMELY, SALES TAX AUTHORITIES'. 5. 'THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED'. 4. BRIEF FACTS OF THE CASE LEADING TO THE LEVY O F PENALTY ARE AS UNDER:- THE ISSUE IN THE ASSESSMENT WAS THAT AS PER THE IN FORMATION RECEIVED FROM SALES TAX DEPARTMENT, ASSESSEE HAD ALLEGEDLY TAKEN BILL FOR BOGUS PURCHASES FROM VARIOUS HAWALA PARTIES AMOUNTING TO RS.1,12,81,923/ -. AO IN THE ASSESSMENT ORDER ADDED A SUM OF RS.1,12,81,923. AO IN THE ASSESSMENT ORDER ADDED A SUM OF RS.1,12,81,923. BEING 100% OF SUCH BOGUS PURCHASES. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED LEDGER OF THE PARTI ES COPIES OF PURCHASE AND SALES BILLS AND BANK ACCOUNT STATEMENT PROVING THE PAYMENTS THR OUGH BANKING CHANNELS. HOWEVER, THE AO HELD THAT THE ASSESSEE FAILED TO EX PLAIN THE PURCHASES BY NOT PRODUCING ANY LORRY RECEIPTS AND DELIVERY DETAILS A ND FAILED TO DISCHARGE ONUS BY PRODUCING THE PARTIES BEFORE HIM, AND ADDED THE 100 % OF THE TOTAL PURCHASES AS NON- PRAVIN DAYALDAS GANDHI 3 GENUINE TO THE TOTAL INCOME. ON APPEAL, THE CIT(A) ESTIMATED 12.5% OF THE SAID PURCHASES AS PROFIT. ON FURTHER APPEAL BY THE ASSES SEE, ITAT MUMBAI IN 3532, 3533,3534 AND 3535/M/2018 DATED 28.06.2019 REDUCED THE PROFIT FROM THE BOGUS PURCHASES TO 5%. DURING THE PENALTY PROCEEDINGS, THE ASSESSEE FILED EXPLANATION AS TO WHY PENALTY CANNOT BE LEVIED ON ESTIMATED ADDITION IN T HE ASSESSMENT. HOWEVER, THE AO HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSEE AND IMPOSED PENALTY OF RS.3, ; 57,078 BEING100%% OF TAX EVADED ON ESTIMATED PROFIT OF 12. 5%AFTER THE ORDER OF THE CIT(A), HOLDING THAT HAD THE CASE WAS NOT SELECTED FOR SCRUTINY, THE INCOME FINALLY ASSESSED/CONFIRMED BY THE CIT(A) WOULD HAVE ESCAPED TAX. AO PLACED RELIANCE ON EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT. 5. UPON ASSESSEES APPEAL, LD.CIT(A) DELETED THE PENALTY BY HOLDING AS UNDER:- I HAVE GONE THROUGH THE ASSESSMENT ORDER, ORDER OF THE CIT(A), THE HON'BLE ITAT MUMBAI, THE PENALTY ORDER AND SUBMISSIONS OF THE AS SESSEE. APPELLANT IN ITS DETAILED SUBMISSIONS ARGUED THAT THERE WAS NEITHER ANY WILLF UL ACT RESULTING IN CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME BY THE APPELLANT AND HENCE NO PENALTY SHOULD BE LEVIED UNDER SECTION 271(1)(C) OF THE ACT. HE FURTHER ARGUED THAT SINCE THE ADDITION MADE BY THE LEARNED AO WAS RESTRICTED BY THE HON'BLE CIT(A) AND FURTHER BY THE HON'BLE ITAT AND THAT THE DISALLOWANCE WAS MERE LY AN AD-HOC ESTIMATION OF PROFITS ON ALLEGED PURCHASES, NO PENALTY CAN BE LEVIED. HE PLACED RELIANCE ON NUMBER OF CASE LAWS FOR THE PROPOSITIONS MADE IN THE ARGUMENTS. IT IS OBSERVED THAT ADDITION WAS MADE IN THE ASSESS MENT ORDER U/S 69C EVEN WHEN THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS AND THE SOURCE FOR THE PURCHASES WAS ON THE RECORD. IT IS NOTED THAT THE ADDITION MADE BY T HE AO WAS AN ADHOC ADDITION ON THE ASSUMPTION THAT PURCHASES WERE MADE IN GREY MARKET INSTEAD OF THE BILLS PRODUCED. AN ASSUMPTION HOWEVER BELIEVABLE IT IS CANNOT TAKE PLA CE OF A FACT. BE THAT AS IT MAY, ON APPEAL IN THIS CASE, THE CIT(A) HELD THAT, EVEN AS PER THE ASSUMPTION MADE, ENTIRE PURCHASES CANNOT BE TAXED AND HELD THAT ONLY ESTIMA TED PROFIT OF 12.5% OF THE SAID BOGUS PURCHASES CAN BE BROUGHT TO TAX. ON FURTHER APPEAL, HON'BEL ITAT MUMBAI VIDE ORDER NO. 3532, 3533, 3534 AND 3535/M/2018 DATED 2A.06.20 J9 REDUCED THE ESTIMATED PROFIT TO 5% OF THE ALLEGED BOGUS PURCHASES. RELEVANT EXTRACT S OF THE SAID ORDER IS AS UNDER; '7. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E MATERIAL ON RECORD, WE OBSERVE THAT THE ASSESSES IS ENGAGED IN THE BUSINESS OF TRADING OF IRON AND STEEL SHEETS, ANGLES, COILS ETC. AND THE GP RATE VARIES FROM 1.18% TO 2.20% AS IS APPARENT FROM THE STATEMENT OF COMPARATIVE GP OF F OUR YEARS FILED DURING THE C OURSE OF HEARING. WE NOTE THAT DURING THE YEAR UNDER CON SIDERATION, THE GP RETURNED BY THE ASSESSEE WAS 1.83%. THE LD.CIT(A) H AS CORRECTLY HELD THAT ENTIRE PRAVIN DAYALDAS GANDHI 4 PURCHASES COULD NOT BE ADDED TO THE INCOME OF THE A SSESSEE AND THAT ONLY PROFIT ELEMENT IN THE SAID PURCHASES HAVE TO BE BROUGHT TO TAX HOWEVER WE ARE NOT IN AGREEMENT WITH THE RATE APPLIED ON THE ALLEGED PURC HASES. IN THIS CASE, WE OBSERVE THAT THE ASSESSEE HAS ALREADY ACCOUNTED FOR THESE PURCHASES IN THE BOOKS OF ACCOUNTS AND HAVE RETURNED THE PROFITS ON THESE PURCHASES. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE ONLY SAVINGS WHICH THE ASSESSEE MAY HAVE MADE BY PURCHASING THE GOODS FROM THE GREY MARKET HAVE T O BE BROUGHT TO TAX. IN THE PRESENT CASE, THE ASSESSEE IS A DEALER IN IRON AND STEEL ITEMS AND THE APPLICABLE VAT RATE IS 4%. UNDER THESE CIRCUMSTANCES, WE ARE O F THE VIEW THAT THE PURCHASES WHICH ARE STATED TO BE BOGUS SHOULD BE BROUGHT TO T AX @ 5%. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO APPLY A RATE OF 5% ON THESE BOGUS PURCHASES.' DEPARTMENT IS NOT IN FURTHER APPEAL ON THE ORDER O F THE ITAT, IT IS SEEN THAT FINALLY THE INCOME ASSESSED IN THE HANDS OF THE APP ELLANT IS BASED ON ESTIMATION OF PROFIT. ESTIMATION IS A PURE GUESS WORK AND WHERE INCOME IS ESTIMATED, IT CANNOT BE SAID THAT 'INACCURATE PARTICULARS' HAVE BEEN FURNISHED. APPEL LANT ARGUED THAT HE GENUINELY PURCHASED THE GOODS BASED ON THE BILLS IN HIS POSSE SSION WHICH THE AO HAS NOT ACCEPTED. FURNISHING OF INACCURATE PARTICULARS BEEN NOT BEEN ESTABLISHED BY THE ASSESSING OFFICER, THEREFORE, IN SUCH A CASE PENALTY U/S 271(1)(C) CAN NOT BE LEVIED. IN SUPPORT OF THIS PROPOSITION, RELIANCE IS PLACED ON THE DECISION OF JURISDICTIONAL ITAT IN THE CASE OF EARTHMOVING EQUIPMENT SERVICE CORPORATION V. DY. CI T, 22(2), MUMBAI [2017] 84 TAXMANN.COM 51 (MUMBAI - TRIB.) WHEREIN, ON SIMILAR SET OF FACTS, IT HAS BEEN HELD THAT PENALTY U/S 271(1)(C) CANNOT BE LEVIED. RELEVANT PA RT OF THE DECISION IS REPRODUCED BY THE APPELLANT IN HIS SUBMISSIONS. FURTHER, IN THE CASE OF M/S CHEMPURE VS. ITO (ITA NOS 451,452 & 453/M/2006), THE INCOME WAS ESTIMATED AT 25% OF ALLEGED BOGUS PURCHASES AND PENALTY U/S 271(1)(C) WAS LEVIED ON ESTIMATED I NCOME. THE ITAT, MUMBAI HAS HELD THAT PENALTY U/S 271(1)(C))CANNOT BE LEVIED ON AD H OC ADDITION. THE FACTS OF THE INSTANT CASE ARE EXACTLY IDENTICAL TO THE FACTS OF M/S. CHE MPURE DISCUSSED ABOVE. RELIANCE IS ALSO PLACED ON THE DECISION ON HONBLE PUNJAB HARYANA HIGH COURT IN THE CASE OF HARIGOPA SINGH V. CIT[258 ITR 85] WHERE IN IT WAS HELD AS UNDER: 'IN ORDER TO ATTRACT CLAUSE (C) OF SECTION 271(1), IT IS NECESSARY THAT THERE MUST BE CONCEALMENT BY THE ASSESSEE OF THE PARTICUL ARS OF HIS INCOME OR IF HE FURNISHES INACCURATE PARTICULARS OF SUCH INCOME. WHAT IS TO BE SEEN IS WHETHER THE ASSESSEE IN THE PRESENT CASE HAD CONCEA LED HIS INCOME AS HELD BY THE ASSESSING OFFICER AND THE TRIBUNAL. HE HAD N OT MAINTAINED ANY ACCOUNTS AND HE FILED HIS RETURN OF INCOME ON ESTIM ATE BASIS. THE ASSESSING OFFICER DID NOT AGREE WITH THE ESTIMATE O F THE ASSESSEE AND BROUGHT HIS INCOME TO TAX BY INCREASING IT TO RS.2, 07,500/-. THIS, TOO, WAS ON ESTIMATE BASIS. THE TRIBUNAL AGREED THAT THE INC OME OF THE ASSESSEE HAD TO BE ASSESSED ON AN ESTIMATE OF THE TURNOVER BUT W AS OF THE VIEW THAT THE PRAVIN DAYALDAS GANDHI 5 ESTIMATE AS MADE BY THE ASSESSING OFFICER WAS HIGHL Y EXCESSIVE AND IT FIXED THE TOTAL INCOME OF THE ASSESSEE AT RS. 1,50,000/- FOR THE YEAR UNDER APPEAL. IT IS, THUS, CLEAR THAT THERE WAS A DIFFERE NCE OF OPINION AS REGARDS THE ESTIMATE OF THE INCOME OF THE ASSESSEE. SINCE T HE ASSESSING OFFICER AND THE TRIBUNAL ADOPTED DIFFERENT ESTIMATES IN ASSESSI NG THE INCOME OF THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE HAD ' CONCEALED THE PARTICULARS OF HIS INCOME' SO AS TO ATTRACT CLAUSE (C) OF SECTI ON 271(1).' RELIANCE IS FURTHER PLACED ON THE DECISION OF HON'BLE MUMBAI IN CASE OF SUSHIL CHHATRABHUJ RAHEJA V. ACIT [ITA NO. 1375/MUM/2017] DATED 29.09.2017 WHEREIN ON THE ESTIMATION OF PROFITS, THE HON'BLE TRIBUNAL HAS DELETED PENALTY U/S 271(1)(C) OF THE ACT. RELEVANT EXTRACTS ARE REPRODUCED AS UNDER: 'WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PAR TIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE PERUSAL OF ASS ESSMENT ORDER REVEALS THAT THE ASSESSING OFFICER, WHILE PASSING THE ASSESSMENT ORD ER UNDER SECTION 143(3) RWS 147, MADE THE ADDITION ON THE BASIS OF ESTIMATION. THE ASSESSING OFFICER MADE ADDITION (G? 25% OF THE ALLEGED BOGUS PURCHASES. THE REVENUE HAS NOT DISPUTED THAT ADDITIONS WERE MADE MERELY ON THE BASIS OF EST IMATION. IT IS SETTLED LAW THAT NO PENALTIES IS LEVIABLE UNDER SECTION 271(1)(C) FO R AD HOC /ESTIMATED ADDITIONS. SIMILAR VIEW HAS BEEN TAKEN IN THE VARIOUS DECISION S CITED BY LEARNED AR FOR THE ASSESSEE. ACCORDINGLY, WE ARE OF THE OPINION THAT T HIS IS NOT A FIT CASE FOR LEVY OF PENALTY. IN THE RESULT THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. IN THE LIGHT OF ABOVE, THE LEVY OF PENALTY OF RS.3, 57,078/- U/S. 271(1)(C) OF THE ACT IS HELD NOT TO BE JUSTIFIED ON THE ESTIMATED INCOME. THE AO IS THEREFORE DIRECTED TO DELETE THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. ACCORDINGL Y, THE AFORESAID GROUND NO. 3 RAISED IN THE APPEAL IS ALLOWED. 6. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE LD. DR AND PERUSED THE RECORD . AS CLEAR FROM THE FACTS RECORDED ABOVE, THE DISALLOWANCES HAS BEEN MADE ON AN ESTIMATED BASIS ON ACCOUNT OF THE NON PRODUCTION OF SUPPLIERS BEFORE THE AO. THE PURCHASE VOUCHERS WERE DULY PRODUCED AND THE PAYMENTS WERE THROUGH BANKING CHAN NEL. IN THESE BACKGROUNDS, IN OUR CONSIDERED OPINION ASSESSEE CANNOT BE VISITED W ITH THE RIGOURS OF PENALTY U.S 271(1)(C). AS A MATTER OF FACT, ON MANY OCCASIONS, ON SIMILAR CIRCUMSTANCES IN QUANTUM PROCEEDINGS, THE DISALLOWANCE ITSELF HAS BE EN DELETED. IN OUR CONSIDERED PRAVIN DAYALDAS GANDHI 6 OPINION, ON THE FACTS AND CIRCUMSTANCES OF THE CASE ASSESSEE CANNOT BE SAID TO HAVE BEEN GUILTY OF CONCEALMENT OR FURNISHING OF INACCUR ATE PARTICULARS OF INCOME. IN THIS REGARD, WE DRAW SUPPORT FROM THE DECISION OF A LARG ER BENCH OF THE HONBLE SUPREME COURT IN THE CASE OF THE STATE OF ORISSA 82 ITR 26, WHERE IN IT WAS HELD THAT THE AUTHORITY MAY NOT LEVY THE PENALTY, IF THE CONDUCT OF THE ASSESSEE IS NOT FOUND TO BE CONTUMACIOUS. 8. WE FURTHER NOTE THAT TAX EFFECT IN THIS CASE IS BELOW THE LIMIT FIXED BY CBDT FOR FILING APPEALS BEFORE ITAT. THE REVENUE HAS TRIED T O MAKE OUT A CASE THAT SINCE THE ADDITION WAS MADE PURSUANT TO INFORMATION FROM SALE S TAX DEPARTMENT, THIS PENALTY APPEAL FALLS IN THE EXCEPTION CARVED OUT IN THE CBD T CIRCULAR REGARDING APPEALS ARISING OUT OF ADDITIONS MADE PURSUANT TO INFORMATI ON FROM OUTSIDE AGENCIES. WE ARE OF THE OPINION THAT THIS PLEA IS NOT TENABLE INASMU CH AS ONCE REVENUE ACCEPTS THAT PENALTY IS LEVIED ON OUTSIDE AGENCY INFORMATION, TH E PENALTY LEVIED WILL HAVE NO LEGS TO STAND. 9. IN THE BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENT WE UPHOLD THE ORDERS OF LD.CIT(A) AND DELETE THE LEVY OF PENALTY. 10. IN THE RESULT, THESE REVENUES APPEALS ARE D ISMISSED. PRONOUNCED IN THE OPEN COURT ON 20 /09/2021 SD/- SD/- (RAVISH SOOD) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 20/09/2021 THIRUMALESH, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT PRAVIN DAYALDAS GANDHI 7 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) ITAT, MUMBAI