MEASAGE ARORA OIL & GENRAL MILLS, KOTKAPURA V. INCOME TAX OFFICER WARD- 3 (3 ) , FARIDKOT

ITA 499/ASR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4235 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 23-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Accommodation entries; Set aside
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 499/Asr/2019 Assessment Year: 2010-11 M/s Arora Oil & General Mills B-8, Focal Point, Kotkapura [PAN: AADFA 7443C] Vs. Income Tax Officer, Ward 3(3), Faridkot (Appellant) (Respondent) Appellant by : Sh. Ashwani Kalia, CA Respondent by: Sh. S. M. Surendranath, Sr. DR Date of Hearing: 17.05.2022 Date of Pronouncement: 23.06.2022 ORDER Per Dr. M. L. Meena, AM: This appeal has been filed by the assessee against the impugned order dated 03.05.2019 passed by the Ld. Commissioner of Income Tax (Appeals), Bathinda in respect of the Assessment Year 2010-11. 2. The assessee has raised the following grounds of appeal: “1. That the Id. Commissioner of Income Tax(Appeals), Bathinda while confirming the penalty u/s 271(1)( c ) has erred in law and on facts in ignoring the fact that the AO was not clear in his mind while imposing penalty u/s 271 (1)( c) as to whether the assessee had furnished ITA No. 499/Asr/2019 Arora Oil & Gen. Mills v. ITO 2 inaccurate particulates of income or has concealed the particulars of income. 2. That the Id. Commissioner of Income Tax (Appeals), Bathinda has erred in law and on facts in confirming the penalty of Rs.50747 imposed by AO by invoking the provisions of section 271 (1)( c) ignoring the fact that the addition was made on estimate basis. 3. That the Id. Commissioner of Income Tax (Appeals), Bathinda has erred in law in confirming the penalty u/s 271(1)(c) which was not leviable even otherwise. 4. That the order is bad in law and on facts. 5. That the appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off.” 3. Briefly, the facts are that based on information in the possession of the AO with regard to an accommodation entry of purchase of Rs.6,65,474/- during the period under consideration, the case was reopened and the AO assessed income of the appellant under section 143/147 of the Income Tax Act, 1961. Although the appellant has produced manufacturing documents with support of the bills and however the AO was not satisfied and held that assessee is taking accommodation entry for purchases on commission and rejected the audited books of accounts as falsified and so the book results. The AO did not add the disputed amount as bogus purchases by observing that there could not have been sales without purchases. Accordingly, after rejecting the books, the AO had adopted GP rate of 13.55%, and estimated the profits @ GP rate of 13.55% and made the additions to the returned income. Again, the AO held that the appellant firm consciously and deliberately indulged in contumacious conduct of taking accommodation entry to inflate purchases and by way of ITA No. 499/Asr/2019 Arora Oil & Gen. Mills v. ITO 3 only such accommodation entry, there was concealment of profits. Accordingly, He levied penalty u/s 271(1)(c) of the Act. 4. Being aggrieved with the assessment orders the appellant assessee has filed appeals before the learned CIT appeal who has confirmed the finding of the assessing officer by observing as under: “8. The submissions of the appellant have been considered and the facts obtaining in the case have been carefully perused and appreciated. The judicial precedents relied upon by the appellant and the AO have also been respectfully perused. It is an admitted fact that there was a categorical information in the possession of the AO with regard to an accommodation entry of purchase of Rs.6,65,474/-during the period under consideration, entitling the AO to assume the jurisdiction to assess the appellant under the provisions of section 147/143 of the Income Tax Act, 1961. During the course of the ensuing assessment proceedings, the appellant was confronted with this information in terms of a categorical statement of the seller admitting to have issued only bills without any actual sale of goods and receiving amount by RTGS, which was recycled back to the appellant firm after deducting certain commission. The appellant by merely producing manufactured documents in support of the bogus and fake bills and could not dislodge the factual finding of taking accommodation entry for purchases. There was no attempt by the appellant firm to seek cross- examination of the purported seller who had admitted to be indulging in only accommodation entries in terms of sale and purchase bills on commission. Since the audited books of accounts were falsified because of this specific information which could not be countered by the appellant firm, the book results had to be rejected. Since the appellant firm had undertaken business of trading of materials during the period under consideration, the AO did not add back the bogus purchases as there could not have been sales without purchases. However, that cannot be considered to be an acceptance of the book results, which was correctly rejected. Once the book results were rejected, the AO had the only alternative of estimating the profits. The AO adopted GP rate of 13.55%, which was proximate to the calculation of the GP by the appellant's audited accounts. Such a quantification was based on the appreciation of the business conducted by the appellant and not on any wild guess or imagination and that is why the same was accepted by the appellant firm in as much as the additions to the returned income were not agitated in any appellate forum. It was proved that the ITA No. 499/Asr/2019 Arora Oil & Gen. Mills v. ITO 4 appellant firm consciously and deliberately indulged in contumacious conduct of taking accommodation entry to inflate purchases. The only purpose of such accommodation entry was concealment of profits. Application of a reasonable net profit rate on the unproved transactions cannot, thus, be considered as "guesstimation" of income or wild approximation or rough guess to rule out the applicability of the penal provision. The appellant was guilty of taking accommodation entry which was confirmed by the seller by recording his statement before the DDIT Investigation.” 5. The ld. Counsel for the assessee submitted that the Ld. CIT (Appeals), Bathinda while confirming the penalty u/s 271(1)(c) has erred in law and on facts in ignoring the fact that the AO was not clear in his mind while imposing penalty u/s 271 (1)(c) as to whether the assessee had furnished inaccurate particulates of income or has concealed the particulars of income and that the CIT (Appeals), Bathinda has erred in law and on facts in confirming the penalty of Rs.50747 imposed by AO by invoking the provisions of section 271 (1)(c) ignoring the fact that the addition was made on estimate basis. 6. Per contra, the learned DR vehemently supported the finding of the learned CIT appeal. 7. We heard the learned DR, perused the material on record, impugned order and assessment order. Admittedly, based information received from investigation wing regarding accommodation entry of purchase of Rs.6,65,474/-, the assessee’s case was reopened and estimated addition GP @ 13.55% was made to the returned income during the period under consideration as above. The Ld. CIT(A) has confirmed the penality on the presumption that only purpose of such accommodation entry was concealment of profits. Application of a reasonable net profit rate on the ITA No. 499/Asr/2019 Arora Oil & Gen. Mills v. ITO 5 unproved transactions cannot, thus, be considered as "guess estimation" of income or wild approximation or rough guess to rule out the applicability of the penal provision. In our view, the Ld. CIT(A) was not justified in confirming the penalty u/s 271(1)(c) on the estimated GP addition, on the alleged accommodation entry, although the appellant has produced manufacturing documents with support of the bills in support of its explanation. 8. In the case of “ETCO Profiles (P.) Ltd. vs. Assistant Commissioner of Income-tax, Mumbai” [2015] 61 taxmann.com 470 (Mumbai - Trib.), on similar facts the ITAT MUMBAI BENCH 'E' held as under that Where Assessing Officer had disallowed 20 per cent of purchases without establishing fully that assessee had made purchases from grey market, additions having been made only on estimated basis and that too on presumptions only, impugned penalty levied under section 271(1)(c) was to be deleted. The relevant para 4 is reproduced as under: “4. Having heard rival submissions, we are of the view that there is merit in the contentions of the assessee. Admittedly, the AO has disallowed 20% of purchases only on presumptions without establishing fully that the assessee has made purchases from grey market. Even, if it is assumed for a moment that the assessee might have purchased goods from grey market, it was not established that the amount of purchases was less than that recorded in the books of account. Under these set of facts, it has to be held that the impugned addition has been made only on estimated basis that too on presumptions only. Hence, by following the decision rendered by the Tribunal in the assessee's sister concern's case (supra), we hold that the impugned penalty is liable to deleted. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to delete the penalty of Rs.7,30,464/- levied u/s 271(l)(c) of the Act.” ITA No. 499/Asr/2019 Arora Oil & Gen. Mills v. ITO 6 9. Following, ITAT Mumbai in ETCO Profiles (P.) Ltd (Supra), we hold that the impugned penalty is liable to deleted. Therefore, we set aside the impugned order of Ld CIT(A) and direct the AO to delete the penalty of Rs.50747 levied u/s 271(l)(c) of the Act. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 23.06.2022. Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr.PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T. True Copy By Order