INCOME TAX OFFICER, KAUTALIYA BHAVAN V. RASHESH SHIRISHKUMAR BHUTA, MUMBAI

ITA 4370/MUM/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 7054 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-05-2024
• Assessment Year: 2010-2011
• Appeal Filed On: 30-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A J E M E R A M
• Keywords: Bogus purchase; Tax effect; Question of law; Tax effect; Capital Gains
• Section: 147; 145; 148; 271(1)(c); 143(3); 133(6); 143(1); 274; 48; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI SUNIL KUMAR SINGH, JM ITA Nos.4370 & 4368/Mu m/ 2023 (Assess ment Yea rs: 2010-11 & 2011-12) The I nc o me Ta x Officer 41(3) (3) Mu mbai 436, 4 th Floor, Kautil ya B ha van, Mu mbai-400 051 Vs. Rashesh S hirishkuma r Bhuta, I-437, Raj Arca de, Near Jain Te mple, Maha vir Nagar, Kandivali (West), Mu mbai-400 067 (Appellant) (Respondent) PAN No. AFOPB4631F Assessee by : Ms. K i n j a l B h u t a , A R Revenue by : Sh r i R a j e s h M e s h r a m , D R D a t e o f h e a r i n g : 2 1 . 0 5 . 2 0 2 4 Date of pronouncement : 2 7 . 0 5.2 0 24 O R D E R PER PRASHANT MAHARISHI, AM: 01. ITA No.4370/Mum/2023 and ITA No.4368/Mum/2023 are filed by The Income tax officer 41(3)(3), Mumbai [ the ld. AO ] against the appellate orders passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)] for A.Y. 2010-11 and 2011-12 dated 3/10/2023 and 4/10/2023 respectively, wherein the appeal filed by the assessee against the penalty orders passed under Section 271(1)(c) of the Income-tax Act, 1961 (the Act) dated 15 th March, 2022, by the Asst. Commissioner of Income Tax, National Faceless Assessment Page | 2 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 Centre, Delhi (the learned Assessing Officer) levying the penalty of ₹ 194284 and Rs. 3,23,917/- respectively, were allowed. 02. Grounds in ITA No. 4370/Mum/2023 for A.Y. 2010-11 is as under: “1."Whether the Ld. CIT(A) was right in holding that penalty levied is not sustainable when the purchases. were held to be tainted/bogus and it was only the profit out of this which was estimated?" 2. "Whether the Ld. CIT(A) was right in holding that penalty levied is not sustainable when the purchases were held to be tainted/bogus, and it was only the profit out of this which was estimated?" 3. "Whether the Ld. CIT(A) erred in holding that penalty levied is not sustainable as the addition was made on estimated basis, whereas the Hon'ble High Court of Delhi in the case of JRD Stock Brokers (P.) Ltd. Vs Commissioner of Income Tax - II (2015) held that levy of penalty on estimated basis is justified if on basis of material discovered, there is determined to be additional income that radically changes the character of income originally declared?" 4. "Whether the Ld. CIT(A) erred in holding that penalty levied is not sustainable as the addition was made on estimated basis, whereas the Hon'ble High Court of Patna in the case of CIT vs Md. Warasat (1987) held that Page | 3 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 assessment by estimate is one of the known process in the taxation world, and that, where the assessee conceals relevant material/evidence, the revenue has no option but to make a best judgment by estimate?" 5. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary."” 03. Grounds in ITA No. 4368/Mum/2023 for A.Y. 2011-12 is as under:- “1. "Whether the Ld. CIT(A) was right in holding that penalty levied is not sustainable when the purchases were held to be tainted/bogus, and it was only the profit out of this which was estimated?" 2. "Whether the Ld. CIT(A) was right in holding that penalty levied is not sustainable when the purchases were held to be tainted/bogus, and it was only the profit out of this which was estimated?" 3. "Whether the Ld. CIT(A) erred in holding that penalty levied is not sustainable as the addition was made on estimated basis, whereas the Hon'ble High Court of Delhi in the case of JRD Stock Brokers (P.) Ltd. Vs Commissioner of Income Tax - II (2015) held that levy of penalty on estimated basis is justified if on basis of material discovered, there is determined to be additional income that radically changes the character of income originally declared?" Page | 4 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 4. "Whether the Ld. CIT(A) erred in holding that penalty levied is not sustainable as the addition was made on estimated basis, whereas the Hon'ble High Court of Patna in the case of CIT vs Md. Warasat (1987) held that assessment by estimate is one of the known process in the taxation world, and that, where the assessee conceals relevant material/evidence, the revenue has no option but to make a best judgement by estimate?" 5. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 04. We will first state the facts of A.Y. 2010-11 and facts for A.Y. 2011-12 are identical except the amount of addition and levy of penalty. 05. For A.Y. 2010-11, assessee ,proprietary of M/s Anish Enterprises, filed return of income on 13 th October 2010, at a total income of ₹4,49,570/-, for his trading business in trading in chemical and rubbers. This return was processed under Section 143(1) of the Act. 06. Subsequently, the information was received from Maharashtra Sales Tax Department about purchase of the assessee amounting to ₹1,29,11,206/- from hawala dealers. This information was forwarded to the learned Assessing Officer by DGIT Investigation, Mumbai. As the assesseewas found to be beneficiary of such bogus purchase,the case of the assessee was reopened by issue of notice under Section 148 of the Act dated 1 8th February 2015. The reassessment proceedings culminated into reassessment order passed on 1 9th February, Page | 5 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 2016, wherein the learned Assessing Officer after rejecting the books of accounts u/s 145 (3) of the Act estimated income of such bogus purchases and made an addition at the rate of 9% for extra price paid by the assessee above prevalent pricerelying on the decision of the Hon'ble Gujarat High Court in 365 ITR 451 and 355 ITR 219. Thus, 9% of the profit of ₹11,62,000/- was considered as income arising out of bogus purchases of ₹1,29,11,206/-. 07. During reassessment proceedings the assessee submitted the stock register, sales invoice details and purchase invoices along with ledger accounts etc. stating that payments have been made through account payee cheques. The notice under Section 133(6) of the Act, sent by the learned Assessing Officer to those bogus hawala dealers wasreturned by the postal authorities with remark „undelivered‟. 08. Based on this the total income of the assessee was determined at ₹16,11,570/-. The learned Assessing Officer issued notice under Section 274 of the Act initiating penalty proceedings under Section 271(1)(c) of the Act for filing inaccurate particulars of income. 09. The assessee preferred the appeal before the learned CIT (A) who restricted the addition to the extent of 5% of the total bogus purchase vide order dated 28 th June, 2019. 010. In penalty proceedings the learned Assessing Officer considered the explanation of the assessee to drop the penalty proceedings under Section 271(1)(c) of the Act as in identical circumstances, the addition was made for A.Y. 2009-10 and Page | 6 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 penalty was dropped. On merit,also, the assessee submitted that under facts and circumstances the penalty is not leviable based on reliance placed on several judicial precedents. 011. The learned Assessing Officer rejected such explanation and stated that as assessee has furnished inaccurate particulars of income, as incorrect facts were furnished, penalty is leviable. Accordingly, considering addition confirmed to the extent of ₹6,45,560/-, ld. AO levied penalty under Section 271(1)(c) of the Act of ₹1,94,284/- for furnishing of inaccurate particulars of income. 012. The assessee challenged the penalty order before the learned CIT (A). He considered the written submission furnished by the assessee, wherein it was stated that on estimated addition no penalty can be levied. The learned CIT (A), after discussion and considering the judicial precedents relied upon, held that under facts and circumstances it is evident that addition is made on the estimate basis in this case. He held that in view of several judicial precedents of the co-ordinate Benches, the penalty levied is not justified as addition is made on estimated basis. Therefore, he allowed the appeal of the assessee and directed the learned Assessing Officer to delete the penalty of ₹1,94,284/-. 013. The learned Assessing Officer aggrieved by this appellate order dated 4 th October 2023, is in appeal before us. 014. The learned Departmental Representative stated that the amount of income is generated out of the bogus purchases from hawala dealers and profit of the assessee was estimated Page | 7 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 but as assessee has furnished inaccurate particulars of income, the learned Assessing Officer levied the penalty correctly. The learned Departmental Representative also referred to two judicial precedents mentioned in ground no.3 and 4 of the appeal wherein even on the estimated addition penalty is levied. Therefore, appellate order of the learned CIT (A) is not sustainable. 015. The learned Authorized Representative, Ms. Kinjal Bhuta, referred to a paper book containing 48 pages and it was submitted that. i. Identical order of assessment was passed for A.Y. 2009-10, where also the identical penalty proceedings were initiated. However, vide order dated 18 th March2019, the learned Assessing Officer himself dropped the penalty proceedings for A.Y. 2009-10. She also referred to the office note in the assessment order for A.Y. 2010-11, wherein this fact is also mentioned. She submitted that as there is no change in the facts and circumstances in the case of the assessee for A.Y. 2010-11 and 2011-12, the learned Assessing Officer should not have levied the penalty proceedings under Section 271(1)(c) of the Act on the principles of consistency. ii. She further referred to the ITAT order in the case of the assessee for A.Y. 2009-10, dated 14 th December 2018, wherein in paragraph no.6, the income of the assessee is determined on the basis of estimates. iii. She further referred to the order of the learned CIT (A) dated 28 th June 2019, for A.Ys. 2010-11 and 2011-12, wherein the Page | 8 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 learned CIT (A) after considering the several judicial precedents has estimated the income of the assessee. She submitted that in paragraph no.8.2, the income of the assessee is estimated at the rate of 5% of the bogus purchases. iv. She also referred to the decision of the co-ordinate Bench in the case of ITO Vs. Stripco Springs Pvt. Ltd.in ITA No. 6340/Mum/2019 dated 6 th April 2021, and also of V.K. Ispat & Alloys Vs. ITO in ITA No.2325 & 2326/Mum/2022 dated 24 th January 2023, wherein on identical basis the penalties were deleted for the reason when the additions were made on estimated basis it does not entail penalty under Section 271(1)(c) of the Act. v. She further stated that the decision cited by the learned Departmental Representative in case of JRD Stock Brokers Pvt. Ltd. Vs. CIT dated 4 th March, 2015, of Hon'ble Delhi High Court does not apply to the facts of the case as it was a case of penalty levied under Section 158 BFA (2) on undisclosed income determined on the basis of estimation on the application of gross credits to consider as turnover. She submitted that in this case, the facts are distinguishable. vi. On the decision of CIT VS. Warasat Hussain dated 10 th September 1987, the issue was with respect to the concealment of capital gain. She further referred to paragraph no.16 of the order and submitted that in that case the assessee did not produce necessary materials about capital gains, which were in possession of the assessee to dislodge the view of the Income Tax Officer. She submitted that in the present case the Page | 9 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 assessee has furnished all the details available with assessee in the form of purchase bills, stock register, payment of purchase consideration by cheque, therefore, the facts of the case are also distinguishable. vii. In view of these facts, she submitted that the decision of the co-ordinate Bench in case of V.K. Ispat & Alloys (supra) squarely covers the issue which is on identical facts in favour of the assessee. Therefore, the order of the learned CIT (A) does not have any infirmity. viii. She also raised additional issue that learned Assessing Officer challenges penalty orders, but they are below the requisite monetary limit and therefore, as per CBDT Circular 2/18 dated 7 th November 2018, amended further on 20 th August 2018, these are low tax effect penalty appeals which could not have been preferred by the learned Assessing Officer. For this proposition, she also relied on the decision of Stripco Springs Pvt. Ltd.(supra), wherein in paragraph no.10 the co-ordinate Bench has held that the penalty orders on such facts could not have been agitated by the Revenue before ITAT and only exception is with respect to the quantum addition. 016. On the argument that these are low tax effect appeal, ld. DR submits that penalty orders arising out of the quantum addition which is covered by exception are also covered. She submitted that it could not be the case that on addition revenue can prefer appeal and on penalty on the same addition, revenue cannot appeal. If this view is taken then despite the addition confirmed by lower authorities, but penalty deleted, Page | 10 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 revenue would be deprived of appeal before ITAT. This situation cannot be stated to be correct. 017. We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts show that assessee is allegedly found to have purchased invoices without purchase of goods from hawala dealers as noted by Maharashtra sales tax Authorities intimated to DGIT (inv), Mumbai who in turn intimated to the ld. AO. Based on this, the learned Assessing Officer rejecting the books of accounts u/s 145 (3) of the Act estimated income to the extent of 9% of such bogus purchases for both these years. On appeal, the learned CIT (A) restricted the addition to the extent of 5%. On such addition sustained at the rate of 5% of the bogus purchases, the penalty under Section 271(1)(c) of the Act was levied for both the years. The learned Assessing Officer levied the penalty , on appeal, were deleted by the learned CIT (A) holding that on estimated addition the penalty under Section 271(1)(c) of the Act cannot be sustained. 018. It is a trite law that cannot be universal law that whenever the addition was made on the basis of estimate, penalty under Section 271(1)(c) of the Act cannot be levied. In a case, where addition is made on the basis of information with the learned Assessing Officer that the assessee has purchased merely the invoices from the buyers and assessee does not furnish any information, then perhaps even on the estimated addition, penalty may be levied, if it falls into the specified offence of Section 271(1)(c) of the Act. But the situation would be different, if there is an allegation about bogus Page | 11 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 purchases, Assessee furnishes all the evidences in its possession, demonstrates that goods in fact have entered in to its stock records and consequent sales are not disputed, despite allegedly bogus suppliers could not be found in response to notices u/s 133 (6) of The Act and the ld. AO merely makes addition of estimated amount of percentages of such bogus purchases. It is the case that the learned Assessing Officer asked the assessee to prove the delivery of goods purchase and other additional documents such as transportation slip, weighing slip and local taxes paid which assessee could not produce. Thus, in the present case, the assessee failed to produce the level of details which ld. AO wanted assessee to produce. On these facts, the learned Assessing Officer estimated the income of the assessee by estimating the profit involved in these bogus purchases transaction at the rate of 9%, which was restricted by the learned CIT (A) to 5%. Thus, it is not the case of any information furnished by the assessee found to be inaccurate, but it is a failure of the assessee to substantiate the documents to the extent desired by the learned Assessing Officer. It is also the fact that notices under Section 133(6) of the Act were issued to the various hawala dealers which could not have been served and returned. However, that could have been the reasons for making addition but could not be reason to held that assessee has furnished inaccurate particulars of income. It is further pointed out that on identical facts and circumstances for A.Y. 2009-10, the learned Assessing Officer initiated the penalty proceedings under Section 271(1)(c) of the Act, wherein the addition of bogus purchases made by way of assessment order passed under Page | 12 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 Section 143(3) read with section 147 of the Act dated 14 th March, 2015 and partially deleted by ld. CIT (A) , such penalty proceedings were dropped. It is uncontroverted that the facts for A.Y. 2009-10 and for these two assessment years are not different. Further, the office note placed in re- assessment order for A.Y. 2010-11 clearly shows that facts for all these three assessment years are identical where a decision is taken by the learned Assessing Officer in one assessment year of dropping the penalty proceedings, but levied penalty for these two impugned assessment years. There could not have been anoccasion to levy penalty for other assessment years without pointing out change in the facts of the case or change in law. None of this is pointed out.Further, the orders of the co-ordinate bench in case of Stripco Springs Pvt. Ltd. (supra) &V.K. Ispat & Alloys (supra) are also in favour of the assessee as those are on identical facts and circumstances holding that where addition of income of the assessee is on estimated percentages of bogus purchases, no penalty u/s 271(1) (c) of the Act can be sustained on such addition. 019. Honourable Gujarat High court in RAMESHCHANDRA A SHAH VERSUS ASSTT. CIT, CIRCLE 3 OR HIS SUCCESSOR TAX APPEAL NO. 800 of 2008 dated August 10, 2016, on the question of law " Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal, was right in law in confirming the penalty under Section 271(1)(c) of the Income-tax Act, 1961 in respect of the addition of ₹ 2,09,150/- being 25% of purchases of ₹ 8,36,601" has held that :- "4. Learned Counsel for the appellant has drawn the attention of this Court to the decision of this Court in the case of Vijay Proteins Ltd. v. Commissioner of Income- Page | 13 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 tax reported in [2015] 58 taxmann.com 44 (Gujarat) and relevant paragraphs are reproduced as under :- “Insofar as T.A. No.243/2002 is concerned, the question of law raised therein is already concluded by a decision of this Court rendered in T.A. No.461/2000 & allied matters, as stated herein above. Paras 6 & 6.1 of the said decision are relevant for our purpose, which read thus. ”6. Heard both the parties and gone through the material available on record. In the instant case, we are of the opinion that assessment made is just and proper. The statements made in the affidavits are not based on any record or corroborated with cogent evidence. The presumption raised by the papers which were seized from the custody of the appellant had not been rebutted. Therefore, the issues raised in appeals no. 461 to 464 of 2000 are required to be answered in the affirmative and against the assessee. 6.1 So far as the issue involved in appeals no. 833 to 836 of 2005 is concerned, in view of the decisions cited hereinabove by learned advocate for the appellant we are of the opinion that the penalty has been wrongly imposed under Section 271(1)(c) of the Act. In the case of Krishi Tyre Retreading and Rubber Industries (supra), it Page | 14 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 has been held that as the addition had been sustained purely on estimate basis and no positive fact or finding had been had been found so as to even make the addition which was a pure guess work, no penalty under section 271(1)(c) of the Act could be said to be leviable on such guess work or estimation. We therefore answer the issue involved in appeals no. 833 to 836 of 2005 in the negative and in favour of the assessee.” 18.1 At this juncture, it would be relevant to refer to a decision of the Apex Court in the case of Asst. Commissioner of Income-tax v. Gebilal Kanhaialal, HUF, [2012] 348 ITR 561 (SC) wherein, it has been held that the only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income up to the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement u/s.132(4) and thus, the assessee was entitled to immunity under clause (2) of Explanation 5 to section 271(1)(c).” Learned Counsel for the appellant has also placed reliance on the decision of this Court in the case of Vijay Proteins Ltd. v. Commissioner of Income-tax in Income Tax Reference No.139/1996 with Tax Appeal No.243/2002 wherein the question of law was answered Page | 15 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 in favour of the assessee and against the Revenue and consequently, the penalty imposed was quashed and set aside. It is submitted in the facts of the present case, the order of penalty also imposed upon the assessee may be dismissed. 5. On the other hand, learned Counsel for the respondent – Department has submitted that in view of the bogus purchases, the order of penalty may be confirmed. 6. We have heard learned Counsel for the respective parties and perused the records of the case. Taking into consideration the order the Tribunal, the evidence which has surfaced on record as well as the decision of this Court in the case of Vijay Proteins Ltd. v. Commissioner of Income-tax (supra), we are of the view that the issues raised in this Appeal are to be answered in favour of the assessee and against the Department." 020. Thus, respectfully following the orders of the Honourable Gujarat High court and Honourable Rajasthan high court in Commissioner of Income-tax Versus Krishi Tyre Retreading and Rubber Industries - 2014 (2) TMI 21 - RAJASTHAN HIGH COURT , the appellate orders of the ld. CIT (A) deleting the penalty u/s 271 (1) (c) of The Act , are confirmed. 021. Coming to the argument of The Ld. AR that the learned Assessing Officer could not have filed the appeal before the Tribunal in view of low tax effect in case of the penalty proceedings as exceptions mentioned are only with respect to Page | 16 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 the quantum addition of specified nature relying on paragraph no.10 of the decision of the co-ordinate Bench in case of Stripco Springs Pvt. Ltd., we hold that in paragraph no.4 of the Circular no no. 3/2018 dated 11 th July, 2018, penalty orders are also included for covering tax effect on penalty . 022. The circular provides that :- "10. Adverse judgmentsrelating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect: - (e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI / ED / DRI / SFIO / Directorate General of GST Intelligence (DGGI).” 023. Thus, penalty orders are adverse judgments relating to issues of the proceedings where addition is based on information from specified authority. Therefore, revenue could file an appeal on the issues of addition , as well as penalty or any other issue related to additions made based on specified information from specified agencies. Hence, we reject the argument of the ld. AR that these are low tax effect appeals, which could not have been preferred by the ld. AO. 024. However, as we have already held that this issue is squarely covered in favour of the assessee by the decision of the Honourable Gujarat and Rajasthan High courts, and co- ordinate Bench holding that if income is estimated, penalty u/s 271 (1) ( c) is not sustainable. Facts in those cases and in the Page | 17 ITA Nos. 4370 & 4368/Mum/2023 Rashesh Shirishmumar Bhuta; A.Y. 10-11 & 11-12 present two cases are identical, therefore, respectfully following the same, we confirm the order of the learned CIT (A) and dismiss all the grounds of the appeal of the learned Assessing Officer for all theyears. 025. In the result, the appeals of the learned Assessing Officer for both the years are dismissed. Order pronounced in the open court on 27.05.2024. Sd/- Sd/- (SUNIL KUMAR SINGH) (PRAS HANT MAHAR ISHI) (JUDIC IAL MEM BER) (ACC OUNTANT MEMB ER) Mumbai, Dated: 27.05.2024 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai