MACHINFABRIK , MUMBAI V. INCOME TAX (APPEALS), INCOME TAX DEPARTMENT , MUMBAI

ITA 57/MUM/2023

AI Insights

The case involves Machinfabrik, the appellant, challenging the penalty imposed by the Income Tax Department for alleged inaccuracies in tax returns concerning bogus purchases. The A.O. had reopened the assessee's case based on information from the DGIT(Inv.) about bogus purchase bills. The Tribunal noted that the penalty was based on an estimated addition of 12.5% on the alleged bogus purchases, which was contested by the assessee. The Tribunal referenced several precedents indicating that penalties cannot be levied when additions are made on an estimated basis. The Tribunal concluded that the penalty was unjustified and quashed it.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125895 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-03-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 08-01-2023
• Other Referred Cases: Union of India vs. Dharmendra Textile Processors 306 ITR 277 (SC), CIT vs. Zoom Communication (P) Ltd. 327 ITR 510 (Del), CIT vs. Ravail Singh & Co. [2002] 254 ITR 191 (P & H), CIT vs. Sangrur Vanaspati Mills Ltd. [2008] 303 ITR 53 (SC), Laxman Trimbak Gule vs. ITO (in ITA No. 348/Pune/2018)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 271(1)(c); 69C; 143(3); 143(1); 191

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND MS. KAVITHA RAJAGOPAL, JM IT A N o s . 5 7 & 58 / 2 0 23 ( A s s e ss me nt Y ea rs : 2010 -1 1 & 20 1 1 -1 2 ) Machinfabrik R-89/90, TTC Industrial Area, Rabale MIDC, Navi Mumbai-400 701 V s. Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre, New Delhi-110 001 P A N / G I R N o. AA A F M 7543 C (Appellant) : (Respondent) Assessee by : None Revenue by : Smt. Mahita Nair D a te o f H e a r i n g : 02.03.2023 D ate of P ro n ou n ce me n t : 27.04.2023 O R D E R Per Kavitha Rajagopal, J M: These appeals have been filed by the assessee, challenging the order of the learned Commissioner’s Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Years (‘A.Y.’ for short) 2010-11 and 2011-12. 2. As there was no representation on behalf of the assessee, we hereby proceed to hear the learned Departmental Representative (ld. DR for short) for the Revenue and on perusal of the available materials on record. 3. The solitary issue involved in these appeals are the penalty levied u/s. 271(1)(c) of the Act. As the issues involved in these two appeals are similar, we hereby pass a consolidated order in both these appeals by taking ITA No. 57/Mum/2023 as a lead case. 2 ITA Nos. 5 7 & 5 8 / 2 0 2 3 ( A . Y s . 2 0 1 0 - 1 1 & 2 0 1 1 - 1 2 ) Machinfabrik vs. Income Tax (Appeals) ITA No. 57/Mum/2023 4. The brief facts of the case are that the assessee filed its return of income for the impugned year on 13.10.2010, declaring total income at Rs.33,37,290/- and the return was processed u/s. 143(1) of the Act. The assessee’s case was selected for scrutiny and the assessment order u/s. 143(3) of the Act dated 04.03.2013 was passed, determining the total income at Rs.50,25,640/-. Subsequent to this, the assessee’s case was reopened u/s. 147 of the Act for the reason that as per the information received from the DGIT(Inv.) that the assessee was one of the beneficiary of accommodation entries from hawala parties by way of bogus purchase bills. The assessment order dated 30.11.2015 was passed u/s. 143(3) r.w.s. 147 of the Act, whereby the A.O. determined the total income at Rs.51,73,854/- by making an addition of Rs.1,48,214/- on bogus purchases u/s. 69C of the Act. The penalty proceeding was initiated u/s. 271(1)(c) of the Act and penalty order dated 13.05.2016 was passed u/s. 271(1)(c) of the Act where a penalty of Rs.46,000/- was levied for furnishing inaccurate particulars of income in respect of addition of Rs.1,48,214/- was made by the A.O. 5. Aggrieved by the said order, the assessee was in appeal before the ld. CIT(A) who confirmed the said penalty levied by the A.O. 6. Further aggrieved the assessee is in appeal before us. 7. The ld. DR for the revenue contended that the assessee has failed to contradict the information received from the Maharashtra Sales Tax Department pertaining to the fact that the assessee was a beneficiary of bogus bills. The ld. DR further stated that the assessee has not challenged the assessment order and has brought our notice to the 3 ITA Nos. 5 7 & 5 8 / 2 0 2 3 ( A . Y s . 2 0 1 0 - 1 1 & 2 0 1 1 - 1 2 ) Machinfabrik vs. Income Tax (Appeals) assessment order where the A.O. has specified that the assessee has failed to furnish any documentary evidences to prove the genuinety of the purchases made by the assessee. The ld. DR relied on the decision of Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textile Processors 306 ITR 277 (SC) and the decision of the Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication (P) Ltd. 327 ITR 510 (Del). 8. We have heard the ld. DR and perused the materials available on record. It is evident from the written submission made by the assessee that the assessee firm had made purchases from M/s. Arihant Steel, amounting to Rs.11,85,715/- which company was alleged to be a hawala dealer as per the information from the Sales Tax Department. During the assessment proceeding, it is observed that the A.O. had issued notice u/s. 133 of the Act to the said party which was returned unserved by the postal authorities. The A.O. made an addition of Rs.12.5% of the impugned purchases on estimation basis after considering the gross profit offered by the assessee in its return of income and also by relying on the various tribunals’ decision for the reason that the assessee has failed to discharge the onus to prove the genuinety of the impugned transaction. The A.O. levied penalty u/s. 271(1)(c) of the Act for the reason that the assessee has furnished inaccurate particulars of income with respect to the disallowance of Rs.1,48,214/- pertaining to the alleged bogus purchases made from M/s. Arihant Steel. The assessee in its submission has contended that the assessee had filed ledger accounts, copies of bills and delivery challans, pertaining to M/s. Arihant Steel along with the details of bill wise purchase and also the details of the sales made by the assessee. The assessee contended that the 4 ITA Nos. 5 7 & 5 8 / 2 0 2 3 ( A . Y s . 2 0 1 0 - 1 1 & 2 0 1 1 - 1 2 ) Machinfabrik vs. Income Tax (Appeals) purchases of goods made from alleged parties were sold during the year and the same was not included in the closing stock. The assessee further submitted that the payments were made through banking channels and the details of which have been furnished. The assessee also stated that it was not provided with the copy of the statement record of M/s. Arihant Steel both under MVAT and IT proceedings. The assessee relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Ravail Singh & Co. [2002] 254 ITR 191 (P & H), CIT vs. Sangrur Vanaspati Mills Ltd. [2008] 303 ITR 53 (SC) and the decision of the Pune Tribunal in the case of Laxman Trimbak Gule vs. ITO (in ITA No. 348/Pune/2018 vide order dated 05.04.2021), wherein it was held that no penalty can be levied in case of addition made on the basis of estimate. The assessee further submitted that the assessee choose not to challenge the assessment order in order to buy peace of mind and also for the purpose of co-operating with the revenue department. 9. Upon consideration of the above facts, we are of the view that the impugned addition made by the A.O. was on the basis of the estimation calculated @ 12.5% on the bogus purchase alleged to be made by the assessee from M/s. Arihant Steel supposed to be hawala party as per the Sales Tax Department. This is an undisputed fact which has been agreed by the Revenue. It is evident that various courts have held that the penalty cannot be levied in cases where the addition has been made on estimated basis. By considering the decisions cited by the assessee, it is further justified that this proposition is a settled principle of law. The decisions relied upon by the ld. DR will not hold the case of the Revenue in the present scenario. Hence, by respectfully following the 5 ITA Nos. 5 7 & 5 8 / 2 0 2 3 ( A . Y s . 2 0 1 0 - 1 1 & 2 0 1 1 - 1 2 ) Machinfabrik vs. Income Tax (Appeals) decisions cited above, we find no justification in the penalty levied u/s. 271(1)(c) of the Act in assessee’s case. Hence, the penalty levied u/s. 271(1)(c) is hereby quashed. ITA No. 58/Mum/2023 10. As the facts are identical, the above observation in ITA No. 57/Mum/2023 will apply mutatis mutandis to this appeal also. 11. In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open court on 27.04.2023. Sd/- Sd/- (Prashant Maharishi) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 27.04.2023 Roshani , Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai