A.C.I.T. C.C.35, MUMBAI V. ETCO TELECOM LTD., MUMBAI

ITA 5996/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84431 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 01-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Business income; Depreciation; Search and seizure; Initiation of penalty proceedings; Revised return
• Section: 153A; 14A; 132

Judgement Text

, , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI , .. , ! ' # BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER . / ITA NO.5243/MUM/2012 $ $ $ $ / ASSESSMENT YEAR: 2005-06 M/S ETCO TELECOM LTD. 142-A, ANDHERI INDUSTRIAL ESTATE, OPP. VEER DESAI ROAD, ANDHERI (W), MUMBAI-400053 VS. ACIT, CENTRAL CIRCLE-35, ROOM NO.3, AAYAKAR BHAVAN, MUMBAI-400020 ( %& / ASSESSEE) ( ' / REVENUE) P.A. NUMBER : AAACP3383N . / ITA NOS.5994 TO 5998/MUM/2012 $ $ $ $ / ASSESSMENT YEAR: 2002-03 TO 2006-07 INCOME-TAX OFFICER 8(1)-3, ROOM NO.206, 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 VS. M/S ETCO TELECOM LTD. 142-A, ANDHERI INDUSTRIAL ESTATE, OPP. VEER DESAI ROAD, ANDHERI (W), MUMBAI-400053 ( ' / REVENUE) ( %& / ASSESSEE ) P.A. NUMBER : AAACP3383N . / ITA NO. 5999/MUM/2012 $ $ $ $ / ASSESSMENT YEAR: 2004-05 INCOME-TAX OFFICER 8(1)-3, ROOM NO.206, 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 VS. M/S ETCO AUTOMOTIVE PVT LTD. 142-A, ANDHERI INDUSTRIAL ESTATE, OPP. VEER DESAI ROAD, ANDHERI (W), MUMBAI-400053 ( ' / REVENUE) ( %& / ASSESSEE ) P.A. NUMBER : AAACP3383N ( %& ( (( ( ) ) ) ) / ASSESSEE BY SHRI ANUJ KISNADWALA ' ( (( ( ) ) ) ) /REVENUE BY : SHRI SACHIDANAND DUBE 2 M/S ETCO TELECOM LTD. ( &*! / DATE OF HEARING : 09/12/2014 +,$ ( &*! / DATE OF PRONOUNCEMENT : 17/12/2014 ' - ' - ' - ' - / O R D E R PER JOGINDER SINGH (JM) : THE BUNCH OF SEVEN APPEALS OUT OF WHICH ONE IS BY T HE ASSESSEE (ITA NO.5243/MUM/2012) AND REMAINING SIX B Y THE REVENUE. THE ASSESSEE AS WELL AS THE REVENUE BOTH ARE AGGRIEVED BY THE IMPUGNED ORDER DATED 02/07/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MUMBAI, ON THE GROUND IN SUSTAINING/DELETING THE PENALTY IMPOSED U/S 271(1)( C) READ WITH SECTION 274 OF THE INCOME-TAX ACT, 1961 (HEREINAFTE R THE ACT). FOR ASSESSMENT YEAR 2004-05, TWO APPEALS HAVE BEEN PREFERRED BY THE REVENUE. IN ITA NO.5998/MUM/2012, THE REVEN UE IS AGGRIEVED IN CANCELLING THE PENALTY OF RS.29,96,440 /- ON THE DISALLOWANCES MADE AMOUNTING TO RS.67,62,311/- WHER EAS IN ITA NO.5999/MUM/2012, THE PENALTY WAS DELETED ON TH E ADDITIONAL PROFIT AT THE RATE OF 1% OF THE SALES AM OUNTING TO RS.38,91,422/-. 2. FIRST, WE SHALL TAKE UP APPEALS OF THE REVENUE. SHRI SACHIDANAND DUBEY, LD. DR, CONTENDED THAT DECLARAT ION WAS MADE BY THE ASSESSEE, PURSUANT TO SEARCH ACTION U/S 132 OF THE ACT, CARRIED OUT AT THE BUSINESS PREMISES OF ETCO G ROUP AS WELL AS THE RESIDENTIAL PREMISES OF THE DIRECTORS. IT W AS PLEADED THAT THE AMOUNT OF RS.7,08,69,757/- WAS SURRENDERED IN T HE HANDS 3 M/S ETCO TELECOM LTD. OF THE DIFFERENT CONCERNS/PERSONS OF THE GROUP AND M/S ETCO TELECOM LTD. IS ONE OF THE CONCERNS OF ETCO GROUP W HICH HAS MADE DISCLOSURE OF RS.2,52,08,546/- FOR ASSESSMENT YEARS 2002-03 TO 2007-08. THE PENALTY WAS ARGUED TO BE R IGHTLY LEVIED BY THE ASSESSING OFFICER AND WRONGLY DELETED BY THE LD. FIRST APPELLATE AUTHORITY. 2.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE, SHRI ANUJ KISNADWALA, DEFENDED THE CONCLUSION DRAWN BY T HE LD. COMMISSIONER OF INCOME TAX (APPEALS), WHEREIN THE P ENALTY WAS DELETED (IN SIX APPEALS) AND CHALLENGED SUSTENANCE OF PENALTY IN ITA NO.5243/MUM/2012. THE CRUX OF ARGUMENT IS THAT THE PENALTY WAS IMPOSED MERELY ON THE BASIS OF STATEMEN T RECORDED FROM A THIRD PARTY, WHICH AS PER THE ASSESSEE IS QU ITE UNJUSTIFIED. IT WAS ALSO PLEADED THAT NO INCRIMINA TING MATERIAL WAS FOUND FROM THE PREMISES OF THE ASSESSEE AND SIM PLY TO BUY PEACE WITH THE DEPARTMENT AND TO AVOID LITIGATION/C ONFRONTATION WITH THE DEPARTMENT, THE AMOUNTS WERE SURRENDERED B Y FURTHER SUBMITTING THAT THE SURRENDER WAS MADE VOLUNTARY FO R ALL THE ASSESSMENT YEARS, THUS NO PENALTY IS IMPOSABLE AS T HERE WAS NEITHER CONCEALMENT OF INCOME NOR FURNISHING OF INA CCURATE PARTICULARS. PLEA WAS ALSO RAISED THAT WHEN INCOME IS ESTIMATED, NO PENALTY IS LEVIABLE. THE LD. COUNSEL PLACED RELI ANCE UPON FOLLOWING JUDICIAL PRONOUNCEMENTS: I. CIT VS SURESH CHANDRA MITTAL(2001) (251 ITR 9)(SC) II. SIR SHADILAL SUGAR & GENERAL MILLS LTD. & ORS. VS C IT (168 ITR 705)(SC). 4 M/S ETCO TELECOM LTD. III. CIT VS S.D.V. CHANDRU (266 ITR 175) (MAD) IV. GEBILAL KANHAIYA LAL (HUF) VS ACIT (270 ITR 523) (RAJ.) V. CIT VS CHHABRA EMPORIUM (264 ITR 549) (DEL.) VI. CIT VS SURESH CHANDRA MITTAL (2000) 241 ITR 124 (MP) 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT A SEARCH AND SEIZURE OPERATION U/S 132 OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF M/S ETCO GROUP AS WELL AS AT THE RESIDENTIAL PREMISES OF THE DIRECTORS. DURING THE S EARCH AND SEIZURE OPERATION, AN AMOUNT OF RS.7,08,69,757/- WA S SURRENDERED IN THE HANDS OF THE DIFFERENT CONCERNS/ PERSONS OF THE ETCO GROUP. THE ASSESSEE I.E. M/S ETCO TELECOM LTD, IS ONE OF THE CONCERNS OF ETCO GROUP, WHICH ALSO MADE DISCLOSURE OF RS.2,52,08,546/- FOR ASSESSMENT YEARS 2002-03 TO 2007-08. THE SURRENDERED AMOUNT IS SUMMARIZED HEREUNDER: S.NO. PARTICULARS AY 02-03 (AMT. IN RS.) AY 03-04 (AMT. IN RS.) AY 04-05 (AMT. IN RS.) AY 05-06 (AMT. IN RS.) AY 06-07 (AMT. IN RS.) (I) ADDITIONAL GROSS PROFIT @ 1% OF SALES 77,09,505 46,29,878 57,18,060 16,95,239 ---- (II) DISALLOWANCE OF INTEREST 6,43,737 22,33,128 8,30,821 1,85,597 ---- (III) WITHDRAWAL OF CLAIM U/S 35D 2,09,430 2,09,430 2,09,430 2,09,430 2,09,430 (IV) DISALLOWANCE U/S 14A ----- ----- 4,000 2,000 ---- (V) WITHDRAWAL OF FOREIGN TRAVELLING EXPENSES --- --- -- -- 3,00,000 TOTAL 85,62,673 70,72,436 67,62,311 20,92,266 5,09, 430 5 M/S ETCO TELECOM LTD. 2.3. THE ASSESSEE WHILE FILING THE RETURN OF INCOME U/S 153A OF THE ACT, MADE DISCLOSURE OF THE UNDISCLOSED INCOME, ADMITTED DURING SEARCH ACTION, THE BREAK-UP OF THE SAME IS A LSO SUMMARIZED HEREUNDER: SL. NO. NATURE OF UNDISCLOSED INCOME A SSESSMENT YEARS AMOUNT(RS.) 1. GROSS PROFIT @1% OF SALES 2002 - 03 77,09,505/ - DISALLOWANCE OF INTEREST 2002 - 03 6,43,738/ - WITHDRAWAL OF CLAIM U/S35D 2002 - 03 2,09,430/ - 2. GROSS PROFIT @1% OF SALES 2003 - 04 46,29,878/ - DISALLOWANCE OF INTEREST 2003 - 04 22,33,128/ - WITHDRAWAL OF CLAIM U/S35D 2003 - 04 2,09,430/ - 3. GROSS PROFIT @1% OF SALES 2004 - 05 57,18,060/ - DISALLOWANCE OF INTEREST 2004 - 05 8,30,821/ - DISALLOWANCE U/S 14A 2004 - 05 4,000/ - WITHDRAWAL OF CLAIM U/S35D 2004 - 05 2,09,430/ - 4. GROSS PROFIT @1% OF SALES 2005 - 06 16 ,95,239/ - DISALLOWANCE OF INTEREST 2005 - 06 1,85,597/ - DISALLOWANCE U/S 14A 2005 - 06 2,000/ - WITHDRAWAL OF CLAIM U/S35D 2005 - 06 2,09,430/ - 5. WITHDRAWAL OF CLAIM U/S 35 - D 2006 - 07 2,09,430/ - WITHDRAWAL OF FOREIGN TRAVEL EXP. 2006 - 07 3,00,000/ - 6. WI THDRAWAL OF CLAIM U/S 35 - D 2007 - 08 2,09,430/ - TOTAL 2,52,08,546/- 2.4. PURSUANT TO THE ABOVE DISCLOSURE, THE LD. ASSE SSING OFFICER INITIATED PENALTY PROCEEDING U/S 271(1)(C) OF THE A CT BY ISSUANCE OF SHOW CAUSE NOTICE U/S 274 R.W.S. 271(1)(C) DATED 31/12/2009 AND 12/02/2010, ASKING THE ASSESSEE, AS TO WHY PENA LTY MAY NOT BE IMPOSED. THE ASSESSEE IN ITS REPLY EXPLAINE D AS UNDER: 6 M/S ETCO TELECOM LTD. 'DISALLOWANCE OF INTEREST OF RS. 6,53,593/- THE ADDITION MADE BY THE AD HAS BEEN FULLY DELETED BY THE HON'BLE CIT(A). HENCE NO PENALTY U/S 271(1)(C) IS A TTRACTED ON THIS ACCOUNT. . ADDITION OF RS. 52,92,000/- ON ACCOUNT OF BOGUS PURCHASES :- B) THE HON'BLE CIT(A) HAS RESTRICTED THE DISALLOWAN CE TO RS. 11,20,0001- THEREBY ALLOWING SUBSTANTIAL RELIEF TO THE EXTENT OF RS. 44,52,0001-, (55,72,000- 11,20,000) C) NO PENALTY IS LEVIABLE ON THE ADDITION OF RS. 11 ,20,0001 SUSTAINED BY THE CIT(A), AS THE ADDITION/DISALLOWAN CE IS ENTIRELY ON ESTIMATED DISALLOWANCE, WHICH IS NOT SU PPORTED BY AY CONCRETE MATERIAL ON RECORD THAT THE ASSESSEE HA S SHOWN BOGUS PURCHASES IN THE NAME OF TRITON INFO TECH PVT . LTD. THE HON'BLE CIT(A) REDUCED THE ESTIMATED DISALLOWANCE O F RS. 11,20,000/- IN PLACE OF DISALLOWANCE OF RS. 55,72,0 001- MADE BY THE AD. SUCH ESTIMATED ADDITION IS NOT SUBJECT T O PENALTY U/S 271 (1 )(C) OF THE ACT. D) RELIANCE IS PLACED ON THE DECISION OF PRNIMA DEV I GUPTA (2004) 83 TTJ (JODH), 586,589,590. E) THE HON'BLE CIT(A) HAS REDUCED THE ESTIMATED ADD ITION TO RS. 11,20,0001- BY GIVING SUBSTANTIAL RELIEF OF RS. 44, 52,000/-. APPLYING THE RATION OF DECISION OF THE ITAT TO THE FACTS OF THE ASSESSEE, NO PENALTY IS LEVIABLE ON ESTIMATION. F) APART FROM THIS, THE FACT OF THE ADDITION AND TH E AMOUNT IS QUESTION WERE NOT THE INCOME OF THE ASSESSEE. THE A DDITION WAS MADE ON ACCOUNT OF EXPLANATION GIVEN BY THE ASSESSE E HAVING NOT BEEN ACCEPTED ON ACCOUNT OF ESTIMATION. THEREFO RE, THE PENALTY IS NOT LEVIABLE ON SUCH ADDITION. 7 M/S ETCO TELECOM LTD. G) RELIANCE IS PLACED ON THE DECISION OF CIT VS DHI LLON RICE MILLS (2002) 256 ITR 447 (P&H). H) THE DISALLOWANCE HAS BEEN MADE SOLELY ON THE BAS IS OF THE STATEMENT OF SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF M/S TRITON INTOTECN PVT. LID., WHO WAS NOT ALLOWED TO BE CROSS EXAMINED. THIS STATEMENT OF SHRI KRISHNA KUMAR GUPTA HAS BEEN ACCEPTED AS GOSPEL TRUTH WITHOUT AN}' CORROBORATIVE MATERIAL TO SUPPORT THE SAID CLAIM OF SHRI KRISHNA KUMAR GUPTA, RATHER THE AD HAS ASSUMED THAT SALES MADE BY THE ASSESSEE WERE GENUIN E AS ALL THE PARTIES HAVE CONFIRMED THE PURCHASE MADE FROM A SSESSEE COMPANY. THE PAYMENT WAS MADE BY CHEQUE TO TRITON I NFOTECH PVT. LTD. AND PAYMENT WAS RECEIVED BY CHEQUE FROM S ALES PARTIES WHICH PROVES THE GENUINENESS OF THE PURCHAS ES MADE BY THE ASSESSEE COMPANY FROM MIS TRITON INFOTECH PV T. LTD . I) THE ASSESSEE COMPANY WAS NOT GIVEN ANY OPPORTUNI TY TO CROSS EXAMINE SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF M/S TRITON INFOTECH PVT. LTD. TO PROVE THE FALSITY OF H IS STATEMENT THAT HE HAD ONLY ISSUED ACCOMMODATION BILLS. J) THE HON'BLE CIT(A) HAS UPHELD THE ADDITION TO TH E EXTENT OF ONLY RS. 11,20,0001- IN PLACE OF RS. 55,72,000/- VI DE ORDER DATED 19.11.2010. K) EVEN THE ADDITION OF RS. 11,20,0001- SUSTAINED B Y THE CIT(A) IS ALSO ON ESTIMATE BASIS. L) THE ASSESSEE HAS FILED APPEAL BEFORE THE ITA T A GAINST THE ADDITION OF RS. 11,20,0001- SUSTAINED BY THE CIT(A) . IN THESE CIRCUMSTANCES NO PENALTY IS LEVIABLE AS HELD IN THE FOLLOWING CASES :- I CIT VS RELIANCE PETRO PRODUCTS PVT. LTD. 230 CTR 320 (SC) II NATIONAL TEXTILE V. CIT [2001] 249 ITR 125 (114 TAXMAN 203) (GUJ.) III CIT VS. INDEN BISLERS [1999]240 ITR 943 (MAD) 8 M/S ETCO TELECOM LTD. IV CIT V. MATA PRASAD [2005]278 ITR 354 (ALL) V DIIP N.SHROFFVS. JCIT (2007) 291 ITR 519 (SC) VI HINDUSTAN STEEL LTD. V. STATE OF ORISSA, (1972) 831TR 26 (SC) GROSS PROFIT@ 1% OF SALES RS. 16,95,239/-. PENALTY U/S 271(1)(C) IS NOT ATTRACTED ON THIS SURR ENDERED INCOME BECAUSE OF THE FOLLOWING REASONS :- A) THE DISCLOSURE OF ADDITIONAL INCOME BY WAY OF 1% OF SALES WAS MADE BY THE ASSESSEE ONLY TO AVOID ANY LITIGATI ON AND TO BUY PEACE OF MIND. SUCH SURRENDER DOES NOT AMOUNT T O ANY ADMISSION OF GUILT ON THE PART OF THE ASSESSEE FOR ANY SUPPRESSION OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. B) AFTER SEARCH, THE INVESTIGATING OFFICER EXAMINED AND VERIFIED THE GENUINENESS OF THE PURCHASES MADE BY THE ASSESS EE BY MAKING REFERENCE TO THE PARTIES, FROM WHOM PURCHASE S WERE MADE. THE SAID COMPANY HAS ALSO MAINTAINED QUANTITA TIVE STOCK AND NO DISCREPANCY THEREIN WAS FOUND OUT IN C OURSE OF POST SEARCH INVESTIGATION. C) EVEN AFTER THOROUGH INVESTIGATION, NEITHER THE I NVESTIGATING OFFICER NOR THE AO COULD DETECT ANY SUPPRESSION OF SALES OR INFLATION OF PURCHASE OR EXPENSES. D) NO UNDISCLOSED ASSETS IN THE NAME OF THE ASSESSE E HAS BEEN FOUND OUT FROM THE MATERIAL GATHERED DURING THE COU RSE OF OPERATION. E) THE SURRENDER OF ADDITIONAL PROFIT OF 1 % OF SAL E WAS MADE AS THE ASSESSEE WAS APPREHENSIVE THAT IT MAY NOT BE PO SSIBLE FOR IT TO ESTABLISH THE GENUINENESS OF PURCHASE IN EACH AND EVERY CASE TO THE SATISFACTION OF THE DEPARTMENT. F) THE 1% OF SALES IS DISCLOSED BY THE ASSESSEE AS ESTIMATED PROFIT AND NOT THE ACTUAL PROFIT OR INCOME. BUT TO CO-OPERATE WITH 9 M/S ETCO TELECOM LTD. THE DEPARTMENT AND TO BUY PEACE OF MIND AS WELL AS TO AVOID LITIGATION, WITH THE IMPRESSION THAT ASSESSEE WILL GET IMMUNITY FROM PENALTY PROCEEDINGS UNDER PROVISIONS OF THE I. T. ACT, 1961. THE DEPARTMENT HAS ALSO ESTIMATED THE ADDITIONAL PR OFIT @ 1% DECLARED BY THE ASSESSEE AND THE ESTIMATED INCOME I S NOT SUBJECT TO PENALTY PROVISIONS AS. HELD BY THE FOLLO WING DECISIONS :- 1) PURNIMA DEVI GUPTA (2004) 83 TTJ(JODH) 2) CIT VS DHILLON RICE MILLS (2002) 2561TR 447 (P&H ) VII. THE ASSESSEE IS ENTITLED TO IMMUNITY FROM PENA LTY U/S 271(1)(C) IN VIEW OF SUB-CLAUSE 2 OF EXPLANATION 5 TO SECTION 271(1){C) OF THE I. T. ACT, 1961. VIII. IN THIS CONNECTION THE ASSESSEE COMPANY IS RE LYING ON THE FOLLOWING DECISION:- A) CIT VS SURESH CHANDRA MITTAL 251 ITR 9 (SC) B) SIR SHADILAL SUGAR & GENERAL MILLS LTD. AND OTHE RS VS CIT DELHI-168 ITR 705 (SC) C) CIT VS. S.D. V. CHANDRU 260 ITR 175 (MAD.) D) GEBILAL KANHAIALAL (HUF) VS ACIT-270 ITR 523 (GU J.) E) CIT VS CHHABRE EMORIUM -264 ITR 249 (DEL.) DISALLOWANCE U/S 14A OF RS. 66,000/- THE ASSESSEE BEGS TO SUBMIT THAT IT HAD VOLUNTARILY MADE A DISALLOWANCE OF RS. 2,000/- U/S 14A OF THE I. T. AC T. EVEN IF THERE IS SOME FURTHER DISALLOWANCE ON RE- COMPUTE A S DIRECTED BY CIT(A), IT WOULD NOT AMOUNT OF CONCEALMENT OF IN COME OR' FURNISHING OF INACCURATE PARTICULARS. ON THE QUESTI ON OF LEVY OF PENALTY U/S 271(1)(C), IT HAS BEEN HELD BY THE HON' BLE SUPREME COURT THAT MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NO T ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT ATTRACT PENALTY U/S 271 (1)(C). 10 M/S ETCO TELECOM LTD. IN THE LIGHT OF THE ABOVE SUBMISSION AND THE VARIOU S JUDICIAL DECISIONS CITED ABOVE, WE HUMBLY REQUEST YOUR HONOU R TO KINDLY DROP THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I . T. ACT. 2.5. UNSATISFIED WITH THE ABOVE REPLY OF THE ASSESS EE, THE LD. ASSESSING OFFICER HELD THAT THE ASSESSEE HAS COMMIT TED DEFAULT, THEREFORE, THE PENALTY IS IMPOSABLE AND HE LEVIED T HE PENALTY AS DETAILED IN THE RESPECTIVE PENALTY ORDERS. 2.6. ON APPEAL, BEFORE THE LD. FIRST APPELLATE AUTH ORITY, THE LD. COMMISSIONER OF INCOME TAX (APPEALS), CONSIDERED TH E REPLY OF THE ASSESSEE FOR IMPOSING PENALTY AND PLACING RELIA NCE UPON VARIOUS JUDICIAL PRONOUNCEMENTS DELETED THE PENALTY . THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUND ER FOR READY REFERENCE: 5.2 . I HAVE CONSIDERED THE SUBMISSIONS OF THE APP ELLANT AND FACTS OF THE CASE CAREFULLY. IT IS NOTICED THAT THE DISAL LOWANCE WAS MADE U/S. 14A AND THE CIT(A) HAS DIRECTED THE AO TO RE-C OMPUTE THE DISALLOWANCE AS PER THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE & MFG. CO. LTD. BUT HE AO HAS LEVIED PENALTY U/S. 271(1)(C) ON THIS AMOUNT. ON THE OTHER HAND, THE AR OF THE APPELLANT HAS RELIED ON THE DECISION OF SUPREME COURT IN CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. SUPRA. KE EPING IN VIEW THE FACTS AND CIRCUMSTANCES AND DECISION OF HON'BLE SUP REME COURT, IT IS HELD THAT DISALLOWANCE U/S. 14A IS A LEGAL ISSUE AND IT IS NOT A CASE OF CONCEALMENT AND SUBMITTING OF INACCURATE PARTICU LARS' OF INCOME, THEREFORE, PENALTY LEVIED U/S. 271(1)(C) IS NOT SUS TAINABLE, HENCE DELETED. (V) ADDITION ON ACCOUNT OF BOGUS PURCHASES - (AY 20 05-06) 6. DURING THE COURSE OF SEARCH AND SEIZURE OPERATIO N, INCRIMINATING DOCUMENTS WERE FOUND AND SEIZED WHICH INDICATES THA T THE ASSESSEE 11 M/S ETCO TELECOM LTD. HAD MADE PURCHASES WORTH RS.2,78,60,000J-IN THE YEA R UNDER CONSIDERATION FROM M/S. TRITON INFOTECH PVT. LTD. D URING THE SEARCH OPERATION, THE STATEMENT OF SHRI KRISHNA KUMAR GUPT A, DIRECTOR OF M/S. TRITON INFOTECH PVT. LTD. WAS RECORDED IN WHIC H HE HAS STATED THAT NO ACTUAL SALES HAVE BEEN MADE BY M/S TRITON INFOTE CH PVT. LTD. TO THE ASSESSEE COMPANY AND ONLY ACCOMMODATION BILLS WERE ISSUED. DURING THE ASSESSMENT PROCEEDINGS, THE AO HAS ASKED THE AS SESSEE TO SUBMIT THE DETAILS WITH DOCUMENTARY EVIDENCES. AFTER CONSI DERING THE DETAILS AND EVIDENCES SUBMITTED BY THE APPELLANT, THE AO HA S HELD THAT THE ASSESSEE HAD MADE SALES TO THE PARTIES AGAINST THES E PURCHASES WHO HAVE CONFIRMED THE TRANSACTION. THEREFORE, THE AO A S CONCLUDED THAT THE ASSESSEE HAS' MADE THESE PURCHASES FROM THE GRE Y MARKET TO AVOID LOCAL TAXES, I.E. SALES-TAX, VAT ETC. TO REDUCE THE .COST OF CONCEALED INCOME TO THIS EXTENT, THEREFORE, THE AO HAS MADE A DISALLOWANCE OF 20% OF THESE PURCHASES AND MADE ADDITION OF RS.55,7 2,000/- AFTER GIVING CREDIT OF RS.2,80,000/- DECLARED DURING THE COURSE OF SEARCH AND INITIATED PENALTY PROCEEDINGS. DURING THE PENAL TY PROCEEDINGS, THE AO HAS AGAIN GIVEN SHOW CAUSE NOTICE TO THE ASSESSE E TO EXPLAIN WHY PENALTY MAY NOT BE LEVIED. AFTER CONSIDERING THE RE PLY OF THE APPELLANT, THE PENALTY WAS LEVIED ON THIS AMOUNT. 6.1 BEFORE ME, THE APPELLANT SUBMITTED AS UNDER: 'THE APPELLANT'S PURCHASES INCLUDED PURCHASE OF RS. 2,78,60,000/- FROM M/S. TRITON LNFOTECH PVT. LTD. IT HAS BEEN OBS ERVED IN THE ASSESSMENT ORDER THAT DURING THE COURSE OF SEARCH A ND SEIZURE OPERATION THE STATEMENT OF SHRI KRISHNA KUMAR GUPTA , DIRECTOR OF M/S. TRITON INFOTECH PVT. LTD., WAS RECORDED IN WHI CH HE STATED THAT ACTUAL SALES HAS NOT BEEN MADE TO THE ASSESSEE COMP ANY BY M/S. TRITON INFOTECH PVT. LTD., BUT ONLY THEY HAD ISSUED ACCOMMODATION BILLS. HOWEVER, IT WAS SUBMITTED BY THE APPELLANT I N COURSE OF ASSESSMENT PROCEEDINGS THAT PAYMENTS WERE MADE TO T HE SAID PARTY THROUGH BANKING CHANNELS BY CHEQUE. IT WAS FURTHER SUBMITTED THAT AO HIMSELF HAS CONFIRMED THAT SALES MADE BY THE ASSESS EE COMPANY WERE GENUINE AS ALL THE PARTIES HAVE CONFIRMED THE PURCH ASES FROM THE ASSESSEE COMPANY. IT WAS CONCLUDED BY AO THAT SINCE THE SALES WERE CONFIRMED, THE PURCHASES HAVE BEEN MADE FROM GREY M ARKET, THEREBY AVOIDING PAYMENT OF SALES TAX AND VAT, ETC. AS THE GREY MARKET 12 M/S ETCO TELECOM LTD. PURCHASE PRICE WOULD BE LOWER THAN' THE BILLED PURC HASE CONSIDERATION, 20% OF PURCHASES OF RS. 2,78,60,000/ - WAS DISALLOWED ON ESTIMATE BASIS WHICH LED TO THE ADDITION OF RS. 52,92,001/- AFTER ALLOWING TELESCOPING OF THE 1 % OF ADDITION SURREND ERED ON TOTAL SALES (RS. 55,72,000/- MINUS RS. 2,80,000/-). A) THE HON'BLE CIT(A) HAS RESTRICTED THE DISALLOWAN CE TO RS. 11,20,000/- THEREBY ALLOWING SUBSTANTIAL RELIEF TO THE EXTENT OF RS. 44,52,000/- (55,72,000 - 11,20,000). B) NO PENALTY IS LEVIABLE ON THE ADDITION OF RS. 11 ,20,000/- SUSTAINED BY THE CIT(A), AS THE ADDITION/DISALLOWANCE IS ENTI RELY ON ESTIMATED DISALLOWANCE, WHICH IS NOT SUPPORTED BY ANY CONCRET E MATERIAL ON RECORD THAT THE APPELLANT HAD SHOWN BOGUS PURCHASES IN THE NAME OF TRITON INFOTECH PVT. LTD. THE HON'BLE CIT(A) REDUCE D THE ESTIMATED DISALLOWANCE TO RS. 11,20,000/- IN PLACE OF DISALLO WANCE OF RS.55J2,000/- MADE BY THE AO. SUCH ESTIMATED ADDITI ON IS NOT SUBJECT TO PENALTY U/S 271(1)(C) OF THE ACT. . C) RELIANCE IS PLACED ON THE DECISION OF PURNIMA DE VI GUPTA (2004) 83 TTJ (JODH), 586, 589, 590 WHEREIN FACTS OF THE C ASES ARE AS UNDER:- 'THE ASSESSEE HAD SHOWN GROSS RECEIPTS OF RS. 10,96 ,370/- FROM BUS PLYING BUSINESS WHICH WERE ESTIMATED BY THE AO AT R S. 16,95,506/- AND THE AO DETERMINED THE INCOME OF THE ASSESSEE BY APPLYING NET PROFIT RATE OF 33 PER CENT. THE ACTION OF THE AO WA S CONFIRMED BY THE CIT(A), HOWEVER, THE TRIBUNAL ESTIMATED THE GROSS R ECEIPTS AT RS. 15,00,000/- AND DIRECTED THE AO TO APPLY A NET PROF IT RATE OF 20 PER CENT SUBJECT TO DEPRECIATION AND INTEREST TO THIRD PARTIES. FROM THE ABOVE FACTS IT WOULD BE CLEAR THAT THERE WAS AN EST IMATE AT THE LEVEL OF THE AO AS WELL AS AT THE LEVEL OF TRIBUNAL IN RESPE CT OF RECEIPTS AS WELL AS NET PROFIT RATE. THE ABOVE FACTS CLEARLY SHOW TH AT THE INCOME OF THE ASSESSEE WAS ESTIMATED AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO THAT THE ASSESSEE CONCEALED ANY PARTICULARS OF I NCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. IT CANNOT BE SAID THAT THE ADDITION MADE IN THE HANDS OF THE ASSESSEE WAS ON ACCOUNT OF ANY CONCEALMENT BY THE ASSESSEE. THEREFORE, THE PROVISIONS OF SECTI ON 271(1)(C) WERE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IT CANNOT BE SAID THAT IN THE CASE OF ASSESSEE THERE WERE ANY FRAUD OR GROSS OR WILLFUL NEGLECT TO 13 M/S ETCO TELECOM LTD. RETURN THE CORRECT INCOME. IN THAT VIEW OF THE MATT ER ALSO THE PENALTY WAS NOT LEVIABLE UNDER SECTION 271(1)( C). NO PENAL TY UNDER SECTION 271(1)(C) WAS LEVIABLE IN THE FACTS OF THE PRESENT CASE BECAUSE IN THIS CASE THE INCOME HAD BEEN ESTIMATED AND THERE WAS NO CONCRETE EVIDENCE THAT THE ASSESSEE FURNISHED INACCURATE PAR TICULARS OF INCOME OR CONCEALED PARTICULARS OF ITS INCOME. ' D) IN THE CASE OF ASSESSEE THE ADDITION IS ESTIMATE D BY AO AT RS. 55,72,000/-. THE HON'BLE CIT(A) HAS REDUCED THE EST IMATED ADDITION TO RS. 11,20,0001- BY GIVING SUBSTANTIAL RELIEF OF RS. 44,52,000/-. APPLYING THE RATIO OF DECISION OF THE ITAT TO THE F ACTS OF THE ASSESSEE, NO PENALTY IS LEVIABLE ON ESTIMATION. E) APART FROM THIS, THE FACTS OF THE ADDITION AND T HE AMOUNT IN QUESTION WERE NOT THE INCOME OF THE APPELLANT. THE ADDITION WAS MADE ON ACCOUNT OF EXPLANATION GIVEN BY THE APPELLANT HAVIN G NOT BEEN ACCEPTED ON ACCOUNT OF ESTIMATION. THEREFORE, THE P ENALTY IS NOT LEVIABLE ON SUCH ADDITION. F) RELIANCE IS PLACED ON THE DECISION OF CIT VS DHI LLON RICE MILLS (200'2) 256 ITR 447 (P&H) WHEREIN IT HAS BEEN HELD THAT 'THE AO SIMPLY ESTIMATED THE YIELD OF SUPER PHAK AS WELL AS OF CHILLKA AND ESTIMATED THE PRICE OF CHILLKA AND MADE THE ADDITIO N BUT THAT ESTIMATION WILL NOT LEAD TO PENALTY.' G) THIS DISALLOWANCE HAS BEEN MADE SOLELY ON THE BA SIS OF THE STATEMENT OF SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF M/S. TRITON INFOTECH PVT. LTD., WHO WAS NOT ALLOWED TO BE CROSS EXAMINED. THIS STATEMENT OF SHRI KRISHNA KUMAR GUPTA HAS BEEN ACCE PTED AS GOSPEL TRUTH WITHOUT ANY CORROBORATIVE MATERIAL TO SUPPORT THE SAID CLAIM OF SHRI KRISHNA KUMAR GUPTA. RATHER THE AO HAS ASSUMED THAT SALES MADE BY ASSESSEE WERE GENUINE AS ALL THE PARTIES HA VE CONFIRMED THE PURCHASES MADE FROM ASSESSEE COMPANY. THE PAYMENT W AS MADE BY CHEQUE TO TRITON INFOTECH PVT. LTD AND PAYMENT WAS RECEIVED BY CHEQUE FROM SALES PARTIES WHICH PROVES THE GENUINEN ESS OF THE PURCHASES MADE BY THE ASSESSEE COMPANY FROM M/S. TR ITON INFOTECH PVT. LTD. 14 M/S ETCO TELECOM LTD. H) THE ASSESSEE COMPANY WAS NOT GIVEN ANY OPPORTUNI TY TO CROSS EXAMINE SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF M/S. TRITON INFOTECH PVT. LTD., TO PROVE THE FALSITY OF HIS STATEMENT TH AT HE HAD ONLY ISSUED ACCOMMODATION BILLS. I) THE HON'BLE CIT (A) HAS UPHELD THE ADDITION TO T HE EXTENT OF ONLY RS. 11,20,000/- IN PLACE OF RS. 55,72,000/- VIDE HI S ORDER DATED 19-11- 2010. J) EVEN THE ADDITION OF RS. 11,20,000/- SUSTAINED B Y THE CIT(A) IS ALSO ON ESTIMATE BASIS. K) THE APPELLANT HAS ALSO FILED APPEAL BEFORE ITAT AGAINST THE CIT(A)'S ORDER SUSTAINING THIS ADDITION OF RS. 11,2 0,000/-. THE APPEAL IS PENDING BEFORE ITAT'. 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND FACTS OF THE CASE. IT IS NOTICED THAT DURING THE COURSE OF SEARC H, DOCUMENTS WERE FOUND AND SEIZED. IT WAS NOTICED THAT THE ASSESSEE HAS MADE PURCHASES FROM M/S. TRITON INFOTECH PVT. LTD. THE STATEMENT O F SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF THIS COMPANY WAS RECORDED WHO HAS STATED THAT NO ACTUAL SALES WERE MADE AND ONLY ACCOMMODATI ON BILLS WERE ISSUED TO THE ASSESSEE COMPANY. IN THE ASSESSMENT P ROCEEDINGS, THE AO HAS HELD THAT SINCE CORRESPONDING SALES HAVE BEE N MADE, THEREFORE, THE ASSESSEE HAS PURCHASED NOT FROM M/S. TRITON INFOTECH PVT. LTD. BUT MADE PURCHASES FROM THE GREY MARKET T O AVOID LOCAL TAXES SUCH AS SALES-TAX, VAT ETC. THEREFORE, THE AO HAS M ADE DISALLOWANCE OF 20% OF THE TOTAL PURCHASES AND MADE ADDITION OF RS.55,72,000/-. IN APPEAL, THE C!T(A) HAS RESTRICTED THIS ADDITION OF RS.LL,20,000/- ON THE BASIS OF ACTUAL RATE OF TAXES SUCH AS SALES-TAX AND VAT AND DELETED THE BALANCE ADDITION OF RS,44,52,000/-. DURING THE PENA LTY PROCEEDINGS, THE AO HAS LEVIED PENALTY ON THE AMOUNT OF RS.11,20 ,000/- BY TREATING IT AS CONCEALED INCOME AND SUBMISSION OF INACCURATE PARTICULARS OF INCOME. NOW THE QUESTION ARISES WHETHER IT WAS A CA SE OF CONCEALMENT OF INCOME. TO ANSWER THIS QUESTION, IT IS CLEAR FRO M THE FACTS OF THE PRESENT CASE THAT DURING THE COURSE OF SEARCH AND S EIZURE OPERATION, DOCUMENTS WERE FOUND AND SEIZED AND IT WAS NOTICED THAT THE ASSESSEE COMPANY HAD MADE PURCHASES FROM M/S. TRITON INFOTEC H PVT. LTD. THE- STATEMENT OF SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF THIS COMPANY WAS 15 M/S ETCO TELECOM LTD. RECORDED WHO HAS STATED THAT NO ACTUAL SALES WERE M ADE TO THE ASSESSEE COMPANY AND ONLY ACCOMMODATION BILLS WERE ISSUED. IN THE ASSESSMENT ORDER, THE AO HAS HELD THAT THE ASSESSEE HAS MADE PURCHASES NOT FROM M/S. TRITON INFOTECH PVT. LTD. B UT FROM THE GREY MARKET TO AVOID PAYMENT OF LOCAL TAXES AND TO THIS EXTENT THE ASSESSEE HAD CONCEALED INCOME. THE AO HAD MADE DISALLOWANCE @ 20% BUT THE CIT(A) HAS REDUCED THIS AMOUNT TO RS.11,20,000/ - ON THE BASIS OF ACTUAL RATE OF LOCAL TAXES. ALTHOUGH, THE AO HAS MA DE DISALLOWANCE ON ESTIMATED BASIS BUT THE CIT(A) HAS RESTRICTED THE A DDITION ON THE BASIS OF ACTUAL RATE OF TAXES. THEREFORE, IT IS A CLEAR C ASE OF CONCEALMENT OF INCOME AND PENALTY U/S. 271(1)(C) IS LEVIABLE. THE ARGUMENT OF THE APPELLANT THAT THE AO HAS MADE DISALLOWANCE ON ESTI MATED BASIS, PENALTY IS NOT LEVIABLE IS NOT ACCEPTABLE BECAUSE I N THE APPELLATE PROCEEDINGS THE CIT(A) HAS ADOPTED THE ACTUAL RATE OF LOCAL TAXES AND CONFIRMED THE ADDITION NOT ON ESTIMATED BASIS BUT O N ACTUAL BASIS. THERE ARE A NUMBER OF DECISIONS ON THIS ISSUE THAT ON ADDITION MADE ON ESTIMATED BASIS PENALTY IS LEVIABLE - ADD!. CIT VS. CHANDRAKANTA & OTHERS (205 ITR 602), CIT VS. KRISHNASWAMY & SONS ( 219 ITR 157), CIT VS. CHANDRA SILAS HOTEL (291 ITR 202) AND A.M. SHAH & CO. VS. CIT (238 ITR 415). IN VIEW OF THESE FACTS AND CIRCU MSTANCES AND THE DECISIONS OF HON'BLE COURTS, IT IS HELD THAT THE AS SESSEE HAS CONCEALED INCOME TO THE EXTENT OF RS.11,20,000/- AND THEREFOR E, SUBMITTED INACCURATE PARTICULARS OF INCOME AND 'PENALTY LEVIE D BY THE AO IS UPHELD. (VI) WITHDRAWAL OF FOREIGN TRAVELLING EXPENSES - (A Y 2006-07) 7. DURING THE COURSE OF SEARCH AND SEIZURE OPERATIO N, THE ASSESSEE WAS CONFRONTED WITH FOREIGN TRAVELLING EXPENSES BUT IN THE ABSENCE OF COMPLETE DOCUMENTARY EVIDENCES, THE ASSESSEE HAD DE CLARED THE AMOUNT OF RS.3,00,000/- AS ADDITIONAL INCOME U/S, 1 32(4). DURING THE ASSESSMENT PROCEEDINGS, THE AO HAS ACCEPTED THIS AD DITIONAL INCOME DECLARED IN THE RETURN IN RESPONSE TO NOTICE U/S 15 3A BUT THE PENALTY PROCEEDINGS U/S. 271(1)(C) WERE INITIATED. DURING T HE PENALTY PROCEEDINGS, THE AO HAS AGAIN GIVEN A SHOW CAUSE NO TICE TO THE ASSESSEE TO EXPLAIN WHY PENALTY MAY NOT BE LEVIED. AFTER CONSIDERING THE REPLY OF THE APPELLANT, THE PENALTY WAS LEVIED. 7.1. BEFORE ME, THE APPELLANT SUBMITTED AS UNDER: 16 M/S ETCO TELECOM LTD. 'THE APPELLANT BEGS TO SUBMIT THAT THE AO HAS NOT R ECORDED ANY SATISFACTION ABOUT THE CONCEALMENT OF INCOME OR FUR NISHING OF INACCURATE PARTICULARS OF INCOME IN RESPECT OF WITH DRAWAL OF FOREIGN TRAVELLING EXPENSES OF RS. 3,00,000/-, WHICH WAS SU RRENDERED BY THE APPELLANT IN THE COURSE OF SEARCH AND SEIZURE OPERA TION AND LATER DISCLOSED IN THE RETURN OF INCOME FURNISHED IN RESP ONSE TO NOTICE U/S 153A OF I. T. ACT. IN THE ASSESSMENT ORDER THE AO H AD ONLY RECORDED SATISFACTION FOR INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) IN RESPECT OF FURTHER DISALLOWANCE OF RS. 38,72,000/- MADE BY HIM ON ACCOUNT OF BOGUS PURCHASE, WHICH WAS DELETED BY CIT (A). A)' THE ABOVE COMMENTS OF THE AO REGARDING THE DISC LOSED INCOME OF RS. 3,00,000/- CLEARLY PROVE THAT HE WAS SATISFIED WITH THE APPELLANT'S EXPLANATION AND HAD COME TO A FINDING THAT THERE WA S NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME IN RESPECT OF THESE DISCLOSURE AMOUNTS. ALTHOUGH THE AO HAS ME NTIONED AT THE END OF THE ASSESSMENT ORDER THAT PENALTY U/S 271 (1 )(C) R. W.S 274 OF THE I. T. ACT IS INITIATED SEPARATELY, YET THE SAID PENALTY NOTICE CANNOT COVER ISSUES ON WHICH THE AO HAS NOT RECORDED ANY S PECIFIC SATISFACTION REGARDING CONCEALMENT OF INCOME OR FUR NISHING OF INACCURATE PARTICULARS OF INCOME. THEREFORE, WITHOU T ANY SUCH SATISFACTION IN COURSE OF ASSESSMENT PROCEEDINGS SP ECIFICALLY ON THIS SURRENDERED INCOME, THE AO CANNOT LEVY PENALTY U/S 271 (1)(C) OF I. T. ACT IN RESPECT OF THESE SURRENDERED INCOMES'. 7.2 I HAVE CONSIDERED THE SUBMISSIONS AND FACTS OF THE CASE. IT IS NOTICED THAT DURING THE SEARCH AND SEIZURE OPERATIO N, THE ASSESSEE HAS DECLARED AN AMOUNT OF RS.3,OO,OOO/- ON ACCOUNT OF F OREIGN TRAVELLING EXPENSES BECAUSE COMPLETE SUPPORTING DOC UMENTS WERE NOT AVAILABLE WITH THE ASSESSEE. THIS AMOUNT WAS DECLAR ED IN THE RETURN FILED IN RESPONSE TO NOTICE U/S. 153A AND DUE TAXES WERE PAID. THE AO HAS ACCEPTED THIS AMOUNT IN THE ASSESSMENT ORDER BU T PENALTY WAS INITIATED. DURING THE PENALTY PROCEEDINGS, THE APPE LLANT HAS SUBMITTED THAT ASSESSEE HAS CLAIMED FOREIGN EXPENDITURE BUT D UE TO NON- AVAILABILITY OF COMPLETE EVIDENCES IT WAS DECLARED AND DUE TAXES WERE PAID, THEREFORE, PENALTY IS NOT LEVIABLE AS HELD BY THE HON'BLE SUPREME COURT IN CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES THAT THE DISALLOWANCE MADE ON ACCOUNT OF 17 M/S ETCO TELECOM LTD. FOREIGN TRAVELLING WHICH WAS ACCEPTED WAS DECLARED BY THE ASSESSEE IN THE RETURN FILED U/S. 153A. THEREFORE, IN VIEW OF T HE DECISION OF HON'BLE SUPREME COURT IN CASE OF RELIANCE PETRO PRODUCTS PV T. LTD. IT IS NOT A. CASE OF CONCEALMENT AND SUBMITTING OF INACCURATE PA RTICULARS OF INCOME. THEREFORE, PENALTY LEVIED BY THE AO IS DELE TED. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 2.7. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDE R/PENALTY ORDER, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATE RIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RES PECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE NOTE THAT THE ALLEGED INCRIMINATING DOCUMENTS WERE FOUND FROM THE PREMISES/POSSESSION OF ETCO GROUP (DIFFERENT ASSESS EE). IT WAS NOTICED THAT THE ASSESSEE MADE PURCHASES FROM M/S T RITON INFOTECH PVT. LTD. AND THE STATEMENT OF ITS DIRECTO R, SHRI K.K. GUPTA, WAS RECORDED, WHEREIN, IT WAS STATED THAT NO ACTUAL SALES WERE MADE AND ONLY ACCOMMODATION BILLS WERE ISSUED TO THE ASSESSEE COMPANY. WHEREAS, IN THE ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER HELD THAT SINCE CORRESPONDING SALES WERE MADE, THEREFORE, THE ASSESSEE DID NOT MAKE PURCHASE S FROM M/S TRINTON INFOTECH PVT. LTD. RATHER FROM GREY MARKET TO AVOID LOCAL TAXES SUCH AS SALES TAX, VAT, ETC, CONSEQUENTLY, HE MADE DISALLOWANCES OF 20% OF THE TOTAL PURCHASES RESULTI NG INTO ADDITION OF RS.55,72,000/-, WHICH WAS RESTRICTED TO RS.11,20,000/- BY THE LD. COMMISSIONER OF INCOME TA X (APPEALS), ON THE BASIS OF ACTUAL RATE OF TAXES AND DELETED THE REMAINING ADDITION OF RS.44,52,000/-. IT SEEMS THA T THE 18 M/S ETCO TELECOM LTD. ASSESSING OFFICER IMPOSED PENALTY ON THE BASIS OF T HE STATEMENT OF SHRI K.K.GUPTA WHO TENDERED THAT HE MERELY ISSUE ACCOMMODATION BILLS AND NO SALES WERE ACTUALLY AFFE CTED. THUS, THERE ARE CONFLICTING FACTS/PRESUMPTION. THE ASSES SING OFFICER MADE THE DISALLOWANCE ON ESTIMATED BASIS AS IS EVID ENT THAT THE ADDITION WAS SUBSTANTIALLY REDUCED BY THE LD. COMMI SSIONER OF INCOME TAX (APPEALS). PENALTY U/S 271(1)(C) OF THE ACT IS LEVIABLE IN A CASE WHERE EITHER THERE IS CONCEALMENT OF INCO ME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME . EVEN OTHERWISE, UNDER THE FACTS AVAILABLE ON RECORD, PEN ALTY IS NOT IMPOSABLE WHEN THE QUANTUM ADDITION IS ON ESTIMATED BASIS. IT IS WELL ESTABLISHED POSITION OF JUDICIAL PRECEDENCE , WHERE QUANTUM ADDITION IS DELETED, PENALTY CANNOT SURVIVE , BECAUSE THE BASIS ON WHICH PENALTY WAS IMPOSED, AFTER ITS D ELETION THE BASE ITSELF DOES NOT REMAIN IN EXISTENCE. OUR VIEW IS FORTIFIED, AND THE RATIO LAID DOWN THEREIN, BY THE FOLLOWING D ECISIONS, 1) K.C. BUILDERS VS ACIT 265 ITR 562 (SC) 2) CIT VS S.P. VIZ CONSTRUCTION COMPANY 176 ITR 47 (PA T.) 3) BARKEY CHACKO VS CIT 203 ITR 885 (SC) 4) ADDL. CIT VS. CHANDRAKANTA & OTHERS (205 ITR 602), 5) CIT VS. KRISHNASWAMY & SONS (219 ITR 157), 6) CIT VS. CHANDRA SILAS HOTEL (291 ITR 202) 7) A.M. SHAH & CO. VS. CIT (238 ITR 415). 19 M/S ETCO TELECOM LTD. 2.8. WE ARE ALSO OF THE VIEW THAT, IT CANNOT BE SAI D THAT FINDING GIVEN IN THE ASSESSMENT PROCEEDINGS FOR DETERMINING OR COMPUTING THE TAX IS CONCLUSIVE. HOWEVER, IT IS A GOOD EVIDENCE, BEFORE PENALTY CAN BE IMPOSED, THE ENTIRETY OF CIRC UMSTANCES MUST REASONABLY POINT TO THE CONCLUSION THAT THE DI SPUTED AMOUNT REPRESENT INCOME AND THE ASSESSEE HAS CONSCI OUSLY CONCEALED THE PARTICULARS OF INCOME OR DELIBERATELY FURNISHED INACCURATE PARTICULARS, AS WAS HELD BY THE HONBLE APEX COURT IN CIT VS ANWAR ALI 76 ITR 696 (SC). ACT DOES NOT CONTEMPLATE INITIATION OF PENALTY PROCEEDINGS ONLY ON THE COMPL ETION OF ASSESSMENT PROCEEDINGS, BECAUSE CONCEALMENT/INACCUR ACY, OCCURRING UP TO FINAL STAGE, INCLUSIVE OF ULTIMATE STAGE OF WORKING OUT OF TOTAL INCOME, MUST BE CONSIDERED, FO R ATTRACTING PENALTY U/S 271(1)(C) OF THE ACT. EVEN OTHERWISE, FOR IMPOSING PENALTY, OF GREATER IMPORTANCE IS THE NECESSITY OF DEFINITE FINDING THAT THERE WAS CONCEALMENT. WHERE THE ASSESSEE FIL ED REVISED RETURN SHOWING HIGHER INCOME, AFTER SEARCH, TO PURC HASE PEACE AND TO AVOID LITIGATION THE DEPARTMENT SIMPLY RESTE D ITS CONCLUSION ON THE ACT OF VOLUNTARY SURRENDERED DONE BY THE ASSESSEE, THE HONBLE HIGH COURT WAS HELD TO JUSTIF Y THAT NO PENALTY IS LEVIABLE. THIS CONCLUSION IS NONE LESS T HAN FROM THE HONBLE APEX COURT IN CIT VS SURESH CHANDRA MITTAL 251 ITR 9 (SC). THE DECISION FROM HONBLE PUNJAB & HARYANA H IGH COURT IN CIT VS RAVAIL SINGH & COM. 254 ITR 191 (P& H), W HEREIN, ADDITIONS WERE MADE ON ESTIMATE BASIS AND THERE WAS NO CONCRETE EVIDENCE OF CONCEALMENT OF INCOME, IT WAS HELD THAT 20 M/S ETCO TELECOM LTD. PENALTY U/S 271(1)(C) IS NOT LEVIABLE. WHILE COMIN G TO THIS CONCLUSION, THE HONBLE COURT CONSIDERED THE FULL B ENCH DECISION FROM THE SAME HIGH COURT IN VISHWAKARMA IN DUSTRIES VS CIT (1982) 135 ITR 652 (P & H)(FB). ULTIMATELY, THE ESTIMATED INCOME WAS COMPUTED BY THE ASSESSING OFFI CER IN THE ASSESSMENT ORDER. IT IS WELL SETTLED LAW THAT THE A DDITION MADE ON THE BASIS OF ESTIMATE AND NOT ON CONCRETE EVIDEN CE OF CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS, THEREFORE, NO PENALTY IS LEVIABLE. WE RELY UPON THE DECISIONS OF THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF CIT VS. DHILLON RICE MILLS (2002) 256 ITR 447, CIT VS. RAVAIL SINGH AND CO. (2002) 254 ITR 191 AND HARIGOPAL SINGH VS.C IT (2002) 258 ITR 85. HON'BLE SUPREME COURT IN THE CASE OF M/ S RAJASTHAN SPINNING AND WEAVING MILLS 2009-TIOL- 63 HELD THAT FOR EVERY DEFAULT PENALTY IS NOT AUTOMATIC. HONBLE MADRAS HIGH COURT IN COMMISSIONER OF INCOME TAX VS K.R. CHINNI KRISHNA CHETTY (246 ITR 121 MAD), ON A QUESTION 'WHETHER, O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN CANCELLING THE PENALTY OF RS. 40,000/- LEVIED UNDER SECTION 271(1)(C) OF THE ACT FOR THE REASON THAT TH E ADDITION HAD ONLY BEEN SUSTAINED ON THE BASIS OF SOME ESTIMATION ?' WHEREIN, THE TRIBUNAL HAS FOUND THAT THE ASSESSEE HAD REPORT ED AN EXPENDITURE OF RS.70,000/- AS THE COST OF CONSTRUCT ION OF A FACTORY BUILDING. THAT AMOUNT CAME TO BE DEBITED IN THE ASSESSEE'S BOOKS OF ACCOUNT ON 2-1-1971. THE INCOME TAX OFFICER BEING OF THE OPINION THAT THE AMOUNT SO SHO WN, AS A 21 M/S ETCO TELECOM LTD. EXPENDITURE ON THE CONSTRUCTION WAS ON THE LOWER SI DE, OBTAINED A REPORT OF THE VALUER AND ESTIMATED THE COST OF CO NSTRUCTION. THE HONBLE HIGH COURT HELD THAT MERE REVISION OF I NCOME TO A HIGHER FIGURE DOES NOT AUTOMATICALLY WARRANT INFERE NCE OF CONCEALMENT OF INCOME, CONSEQUENTLY, IT WAS HELD TH AT PENALTY IMPOSED U/S 271(1)(C) OF THE ACT WAS NOT VALID AND THUS DELETING THE PENALTY BY THE TRIBUNAL WAS HELD TO BE JUSTIFIE D. IT IS ALSO NOTED THAT THE LD. COMMISSIONER OF INCOME TAX (APPE ALS), WHILE EXAMINING THE ASSESSMENT ORDER/PENALTY ORDER HAS DE ALT WITH THE DISALLOWANCES/ADDITIONS, INDIVIDUALLY/SEPARATEL Y AND AFTER FULL ANALYSIS OF THE SAME CAME TO A PARTICULAR CONC LUSION HOLDING THAT THE ESTIMATION WAS EITHER NOT MAINTAIN ABLE OR TOWARDS HIGHER SIDE. IT IS NOT THE CASE THAT THE L D. COMMISSIONER DELETED THE PENALTY WITHOUT ANALYZING THE FACTS AND SUDDENLY REACHED TO A PARTICULAR CONCLUSION. I N VIEW OF THESE FACTS, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), CONSEQUEN TLY, THE ORDER OF THE FIRST APPELLATE AUTHORITY IS UPHELD, R ESULTING INTO, DISMISSAL OF APPEALS OF THE REVENUE. 3. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR A.Y. 2005-06 (ITA NO. 5243/MUM/2012). WHEREIN, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE PEN ALTY WITH RESPECT TO ALLEGED BOGUS PURCHASES ON ESTIMATED ADD ITION OF RS.11,20,000/-. THE LD. COUNSEL FOR THE ASSESSEE I NVITED OUR ATTENTION TO THE SUBMISSIONS MADE BEFORE THE LD. CO MMISSIONER OF INCOME TAX (APPEALS). FOR READY REFERENCE, WE A RE 22 M/S ETCO TELECOM LTD. REPRODUCING HEREUNDER, THE SUBMISSIONS/EXPLANATION OF THE ASSESSEE WHICH HAVE REPRODUCED IN PARA 6.1 OF THE I MPUGNED ORDER: 'THE APPELLANT'S PURCHASES INCLUDED PURCHASE OF RS. 2,78,60,000/- FROM M/S. TRITON LNFOTECH PVT. LTD. IT HAS BEEN OBS ERVED IN THE ASSESSMENT ORDER THAT DURING THE COURSE OF SEARCH A ND SEIZURE OPERATION THE STATEMENT OF SHRI KRISHNA KUMAR GUPTA , DIRECTOR OF M/S. TRITON INFOTECH PVT. LTD., WAS RECORDED IN WHI CH HE STATED THAT ACTUAL SALES HAS NOT BEEN MADE TO THE ASSESSEE COMP ANY BY M/S. TRITON INFOTECH PVT. LTD., BUT ONLY THEY HAD ISSUED ACCOMMODATION BILLS. HOWEVER, IT WAS SUBMITTED BY THE APPELLANT I N COURSE OF ASSESSMENT PROCEEDINGS THAT PAYMENTS WERE MADE TO T HE SAID PARTY THROUGH BANKING CHANNELS BY CHEQUE. IT WAS FURTHER SUBMITTED THAT AO HIMSELF HAS CONFIRMED THAT SALES MADE BY THE ASSESS EE COMPANY WERE GENUINE AS ALL THE PARTIES HAVE CONFIRMED THE PURCH ASES FROM THE ASSESSEE COMPANY. IT WAS CONCLUDED BY AO THAT SINCE THE SALES WERE CONFIRMED, THE PURCHASES HAVE BEEN MADE FROM GREY M ARKET, THEREBY AVOIDING PAYMENT OF SALES TAX AND VAT, ETC. AS THE GREY MARKET PURCHASE PRICE WOULD BE LOWER THAN' THE BILLED PURC HASE CONSIDERATION, 20% OF PURCHASES OF RS. 2,78,60,000/ - WAS DISALLOWED ON ESTIMATE BASIS WHICH LED TO THE ADDITION OF RS. 52,92,001/- AFTER ALLOWING TELESCOPING OF THE 1 % OF ADDITION SURREND ERED ON TOTAL SALES (RS. 55,72,000/- MINUS RS. 2,80,000/-). A) THE HON'BLE CIT(A) HAS RESTRICTED THE DISALLOWAN CE TO RS. 11,20,000/- THEREBY ALLOWING SUBSTANTIAL RELIEF TO THE EXTENT OF RS. 44,52,000/- (55,72,000 - 11,20,000). B) NO PENALTY IS LEVIABLE ON THE ADDITION OF RS. 11 ,20,000/- SUSTAINED BY THE CIT(A), AS THE ADDITION/DISALLOWANCE IS ENTI RELY ON ESTIMATED DISALLOWANCE, WHICH IS NOT SUPPORTED BY ANY CONCRET E MATERIAL ON RECORD THAT THE APPELLANT HAD SHOWN BOGUS PURCHASES IN THE NAME OF TRITON INFOTECH PVT. LTD. THE HON'BLE CIT(A) REDUCE D THE ESTIMATED DISALLOWANCE TO RS. 11,20,000/- IN PLACE OF DISALLO WANCE OF RS.55J2,000/- MADE BY THE AO. SUCH ESTIMATED ADDITI ON IS NOT SUBJECT TO PENALTY U/S 271(1)(C) OF THE ACT. . 23 M/S ETCO TELECOM LTD. C) RELIANCE IS PLACED ON THE DECISION OF PURNIMA DE VI GUPTA (2004) 83 TTJ (JODH), 586, 589, 590 WHEREIN FACTS OF THE C ASES ARE AS UNDER:- 'THE ASSESSEE HAD SHOWN GROSS RECEIPTS OF RS. 10,96 ,370/- FROM BUS PLYING BUSINESS WHICH WERE ESTIMATED BY THE AO AT R S. 16,95,506/- AND THE AO DETERMINED THE INCOME OF THE ASSESSEE BY APPLYING NET PROFIT RATE OF 33 PER CENT. THE ACTION OF THE AO WA S CONFIRMED BY THE CIT(A), HOWEVER, THE TRIBUNAL ESTIMATED THE GROSS R ECEIPTS AT RS. 15,00,000/- AND DIRECTED THE AO TO APPLY A NET PROF IT RATE OF 20 PER CENT SUBJECT TO DEPRECIATION AND INTEREST TO THIRD PARTIES. FROM THE ABOVE FACTS IT WOULD BE CLEAR THAT THERE WAS AN EST IMATE AT THE LEVEL OF THE AO AS WELL AS AT THE LEVEL OF TRIBUNAL IN RESPE CT OF RECEIPTS AS WELL AS NET PROFIT RATE. THE ABOVE FACTS CLEARLY SHOW TH AT THE INCOME OF THE ASSESSEE WAS ESTIMATED AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO THAT THE ASSESSEE CONCEALED ANY PARTICULARS OF I NCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. IT CANNOT BE SAID THAT THE ADDITION MADE IN THE HANDS OF THE ASSESSEE WAS ON ACCOUNT OF ANY CONCEALMENT BY THE ASSESSEE. THEREFORE, THE PROVISIONS OF SECTI ON 271(1)(C) WERE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IT CANNOT BE SAID THAT IN THE CASE OF ASSESSEE THERE WERE ANY FRAUD OR GROSS OR WILLFUL NEGLECT TO RETURN THE CORRECT INCOME. IN THAT VIEW OF THE MATT ER ALSO THE PENALTY WAS NOT LEVIABLE UNDER SECTION 271(1)( C). NO PENAL TY UNDER SECTION 271(1)(C) WAS LEVIABLE IN THE FACTS OF THE PRESENT CASE BECAUSE IN THIS CASE THE INCOME HAD BEEN ESTIMATED AND THERE WAS NO CONCRETE EVIDENCE THAT THE ASSESSEE FURNISHED INACCURATE PAR TICULARS OF INCOME OR CONCEALED PARTICULARS OF ITS INCOME. ' D) IN THE CASE OF ASSESSEE THE ADDITION IS ESTIMATE D BY AO AT RS. 55,72,000/-. THE HON'BLE CIT(A) HAS REDUCED THE EST IMATED ADDITION TO RS. 11,20,0001- BY GIVING SUBSTANTIAL RELIEF OF RS. 44,52,000/-. APPLYING THE RATIO OF DECISION OF THE ITAT TO THE F ACTS OF THE ASSESSEE, NO PENALTY IS LEVIABLE ON ESTIMATION. E) APART FROM THIS, THE FACTS OF THE ADDITION AND T HE AMOUNT IN QUESTION WERE NOT THE INCOME OF THE APPELLANT. THE ADDITION WAS MADE ON ACCOUNT OF EXPLANATION GIVEN BY THE APPELLANT HAVIN G NOT BEEN ACCEPTED ON ACCOUNT OF ESTIMATION. THEREFORE, THE P ENALTY IS NOT LEVIABLE ON SUCH ADDITION. 24 M/S ETCO TELECOM LTD. F) RELIANCE IS PLACED ON THE DECISION OF CIT VS DHI LLON RICE MILLS (200'2) 256 ITR 447 (P&H) WHEREIN IT HAS BEEN HELD THAT 'THE AO SIMPLY ESTIMATED THE YIELD OF SUPER PHAK AS WELL AS OF CHILLKA AND ESTIMATED THE PRICE OF CHILLKA AND MADE THE ADDITIO N BUT THAT ESTIMATION WILL NOT LEAD TO PENALTY.' G) THIS DISALLOWANCE HAS BEEN MADE SOLELY ON THE BA SIS OF THE STATEMENT OF SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF M/S. TRITON INFOTECH PVT. LTD., WHO WAS NOT ALLOWED TO BE CROSS EXAMINED. THIS STATEMENT OF SHRI KRISHNA KUMAR GUPTA HAS BEEN ACCE PTED AS GOSPEL TRUTH WITHOUT ANY CORROBORATIVE MATERIAL TO SUPPORT THE SAID CLAIM OF SHRI KRISHNA KUMAR GUPTA. RATHER THE AO HAS ASSUMED THAT SALES MADE BY ASSESSEE WERE GENUINE AS ALL THE PARTIES HA VE CONFIRMED THE PURCHASES MADE FROM ASSESSEE COMPANY. THE PAYMENT W AS MADE BY CHEQUE TO TRITON INFOTECH PVT. LTD AND PAYMENT WAS RECEIVED BY CHEQUE FROM SALES PARTIES WHICH PROVES THE GENUINEN ESS OF THE PURCHASES MADE BY THE ASSESSEE COMPANY FROM M/S. TR ITON INFOTECH PVT. LTD. H) THE ASSESSEE COMPANY WAS NOT GIVEN ANY OPPORTUNI TY TO CROSS EXAMINE SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF M/S. TRITON INFOTECH PVT. LTD., TO PROVE THE FALSITY OF HIS STATEMENT TH AT HE HAD ONLY ISSUED ACCOMMODATION BILLS. I) THE HON'BLE CIT (A) HAS UPHELD THE ADDITION TO T HE EXTENT OF ONLY RS. 11,20,000/- IN PLACE OF RS. 55,72,000/- VIDE HI S ORDER DATED 19-11- 2010. J) EVEN THE ADDITION OF RS. 11,20,000/- SUSTAINED B Y THE CIT(A) IS ALSO ON ESTIMATE BASIS. K) THE APPELLANT HAS ALSO FILED APPEAL BEFORE ITAT AGAINST THE CIT(A)'S ORDER SUSTAINING THIS ADDITION OF RS. 11,2 0,000/-. THE APPEAL IS PENDING BEFORE ITAT'. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE LEV Y OF 25 M/S ETCO TELECOM LTD. PENALTY ON THIS COUNT. THE CONCLUDING PORTION OF T HE ORDER IS REPRODUCED HEREUNDER FOR READY REFERENCE: 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND FACTS OF THE CASE. IT IS NOTICED THAT DURING THE COURSE OF SEARC H, DOCUMENTS WERE FOUND AND SEIZED. IT WAS NOTICED THAT THE ASSESSEE HAS MADE PURCHASES FROM M/S. TRITON INFOTECH PVT. LTD. THE STATEMENT O F SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF THIS COMPANY WAS RECORDED WHO HAS STATED THAT NO ACTUAL SALES WERE MADE AND ONLY ACCOMMODATI ON BILLS WERE ISSUED TO THE ASSESSEE COMPANY. IN THE ASSESSMENT P ROCEEDINGS, THE AO HAS HELD THAT SINCE CORRESPONDING SALES HAVE BEE N MADE, THEREFORE, THE ASSESSEE HAS PURCHASED NOT FROM M/S. TRITON INFOTECH PVT. LTD. BUT MADE PURCHASES FROM THE GREY MARKET T O AVOID LOCAL TAXES SUCH AS SALES-TAX, VAT ETC. THEREFORE, THE AO HAS M ADE DISALLOWANCE OF 20% OF THE TOTAL PURCHASES AND MADE ADDITION OF RS.55,72,000/-. IN APPEAL, THE C!T(A) HAS RESTRICTED THIS ADDITION OF RS.LL,20,000/- ON THE BASIS OF ACTUAL RATE OF TAXES SUCH AS SALES-TAX AND VAT AND DELETED THE BALANCE ADDITION OF RS,44,52,000/-. DURING THE PENA LTY PROCEEDINGS, THE AO HAS LEVIED PENALTY ON THE AMOUNT OF RS.11,20 ,000/- BY TREATING IT AS CONCEALED INCOME AND SUBMISSION OF INACCURATE PARTICULARS OF INCOME. NOW THE QUESTION ARISES WHETHER IT WAS A CA SE OF CONCEALMENT OF INCOME. TO ANSWER THIS QUESTION, IT IS CLEAR FRO M THE FACTS OF THE PRESENT CASE THAT DURING THE COURSE OF SEARCH AND S EIZURE OPERATION, DOCUMENTS WERE FOUND AND SEIZED AND IT WAS NOTICED THAT THE ASSESSEE COMPANY HAD MADE PURCHASES FROM M/S. TRITON INFOTEC H PVT. LTD. THE- STATEMENT OF SHRI KRISHNA KUMAR GUPTA, DIRECTOR OF THIS COMPANY WAS RECORDED WHO HAS STATED THAT NO ACTUAL SALES WERE M ADE TO THE ASSESSEE COMPANY AND ONLY ACCOMMODATION BILLS WERE ISSUED. IN THE ASSESSMENT ORDER, THE AO HAS HELD THAT THE ASSESSEE HAS MADE PURCHASES NOT FROM M/S. TRITON INFOTECH PVT. LTD. B UT FROM THE GREY MARKET TO AVOID PAYMENT OF LOCAL TAXES AND TO THIS EXTENT THE ASSESSEE HAD CONCEALED INCOME. THE AO HAD MADE DISALLOWANCE @ 20% BUT THE CIT(A) HAS REDUCED THIS AMOUNT TO RS.11,20,000/ - ON THE BASIS OF ACTUAL RATE OF LOCAL TAXES. ALTHOUGH, THE AO HAS MA DE DISALLOWANCE ON ESTIMATED BASIS BUT THE CIT(A) HAS RESTRICTED THE A DDITION ON THE BASIS OF ACTUAL RATE OF TAXES. THEREFORE, IT IS A CLEAR C ASE OF CONCEALMENT OF INCOME AND PENALTY U/S. 271(1)(C) IS LEVIABLE. THE ARGUMENT OF THE 26 M/S ETCO TELECOM LTD. APPELLANT THAT THE AO HAS MADE DISALLOWANCE ON ESTI MATED BASIS, PENALTY IS NOT LEVIABLE IS NOT ACCEPTABLE BECAUSE I N THE APPELLATE PROCEEDINGS THE CIT(A) HAS ADOPTED THE ACTUAL RATE OF LOCAL TAXES AND CONFIRMED THE ADDITION NOT ON ESTIMATED BASIS BUT O N ACTUAL BASIS. THERE ARE A NUMBER OF DECISIONS ON THIS ISSUE THAT ON ADDITION MADE ON ESTIMATED BASIS PENALTY IS LEVIABLE - ADD!. CIT VS. CHANDRAKANTA & OTHERS (205 ITR 602), CIT VS. KRISHNASWAMY & SONS ( 219 ITR 157), CIT VS. CHANDRA SILAS HOTEL (291 ITR 202) AND A.M. SHAH & CO. VS. CIT (238 ITR 415). IN VIEW OF THESE FACTS AND CIRCU MSTANCES AND THE DECISIONS OF HON'BLE COURTS, IT IS HELD THAT THE AS SESSEE HAS CONCEALED INCOME TO THE EXTENT OF RS.11,20,000/- AND THEREFOR E, SUBMITTED INACCURATE PARTICULARS OF INCOME AND 'PENALTY LEVIE D BY THE AO IS UPHELD. 4. WE HAVE CONSIDERED THE MATERIAL AVAILABLE ON REC ORD, REASONS OF IMPOSING PENALTY, CONCLUSION DRAWN IN TH E IMPUGNED ORDER AND THE ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL. THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS T HE EVEN THE ADDITION OF RS. 11,20,000/-, SUSTAINED BY THE LD. C OMMISSIONER OF INCOME TAX (APPEALS), IS ON ESTIMATE BASIS AND F URTHER THE ASSESSEE WAS NOT GIVEN OPPORTUNITY TO CROSS EXAMINE SHRI K.K. GUPTA, DIRECTOR OF M/S TRITON INFOTECH PVT. LTD, TO PROVE THE FALSITY OF THE STATEMENT THAT HE HAD ISSUED ONLY AC COMMODATION BILLS. IT WAS PLEADED THAT ON THE OTHER HAND, THE ASSESSING OFFICER ASSUMED THAT SALES MADE BY THE ASSESSEE ARE GENUINE AS ALL THE PARTIES HAVE CONFIRMED THE PURCHASES MADE F ROM THE ASSESSEE COMPANY. PLEA WAS ALSO RAISED THAT THE PA YMENTS WERE MADE BY CHEQUE TO M/S TRITON INFOTECH PVT. LTD . AND FURTHER THE PAYMENTS WERE ALSO RECEIVED BY CHEQUE F ROM THE SALES PARTIES WHICH PROVES THE GENUINENESS OF THE P URCHASES MADE BY THE ASSESSEE COMPANY FROM M/S TRITON INFOTE CH PVT. 27 M/S ETCO TELECOM LTD. LTD. ON THE OTHER HAND, THE LD. DR DEFENDED THE CO NCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY SUBMITTING THAT THE PENALTY WAS RIGHTLY IMPOSED AS THE ADDITION WAS RIGHTLY MAD E ON ACCOUNT OF BOGUS PURCHASES. 4.1. KEEPING IN VIEW, THE TOTALITY OF FACTS AND CIR CUMSTANCES, WE NOTE THAT THERE IS A CONTRADICTION IN THE CONCLUSIO N ARRIVED AT IN THE ASSESSMENT ORDER WITH RESPECT TO PURCHASES. TH E LD. ASSESSING OFFICER MADE THE ADDITION BY HOLDING THAT SINCE THE CORRESPONDING SALES HAVE BEEN MADE, THEREFORE, THE ASSESSEE PURCHASED THE GOODS NOT FROM M/S TRITON INFOTECH PV T. LTD. BUT FROM THE GREY MARKET TO AVOID LOCAL TAXES SUCH AS S ALES TAX, VAT, ETC. THUS, HE MADE DISALLOWANCE OF 20% OF THE TOTAL PURCHASES WHICH RESULTED INTO ADDITION OF RS.55,72, 000/-. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) REDUCED TH E ADDITION TO RS.11,20,000/-. HOWEVER, DURING SEARCH & SEIZUR E OPERATION, AS PER THE REVENUE, DOCUMENTS WERE FOUND AND SEIZED AND IT WAS CONCLUDED THAT THE ASSESSEE COMPANY MADE PURCHA SES FROM M/S TRITON INFOTECH PVT. LTD. THE STATEMENT O F SHRI K.K. GUPTA WAS RECORDED, WHO TENDERED THAT NO ACTUAL SAL ES WERE MADE TO THE ASSESSEE AND ONLY ACCOMMODATION BILLS W ERE RECEIVED. WHAT IT MAY BE THE FACT REMAINS THAT THE LD. ASSESSING OFFICER RELIED UPON THE STATEMENT OF SHRI K.K. GUPT A AND EVEN NO OPPORTUNITY WAS PROVIDED TO THE ASSESSEE TO CROS S EXAMINE HIM, WHICH IS AGAINST THE PRINCIPLE OF NATURAL JUST ICE. IT SEEMS THE WHOLE ADDITION IS EITHER BASED ON ESTIMATION OR ON THE BASIS OF STATEMENT OF SHRI K.K. GUPTA, THUS IN OUR VIEW, AT LEAST 28 M/S ETCO TELECOM LTD. PENALTY IS NOT IMPOSABLE. IT MAY BE A GOOD CASE FO R QUANTUM ADDITION BUT NOT FOR IMPOSING PENALTY. SO FAR AS, ADDITION BASED ON ESTIMATION IS CONCERNED, WE HAVE ALREADY DEALT W ITH THE ISSUE AFTER PLACING RELIANCE UPON VARIOUS JUDICIAL PRONOU NCEMENTS IN PRECEDING PARA OF THIS ORDER, WHILE DEALING WITH TH E APPEALS OF THE REVENUE, THEREFORE, WE REFRAIN FROM REPEATING T HE SAME. EVEN OTHERWISE, THE ASSESSEE HAS ALREADY MADE A HUG E SURRENDER TO BUY PEACE WITH THE DEPARTMENT AND ALSO TO SAVE ITSELF FROM LITIGATION. 4.2. SO FAR AS, THE CONTENTION OF THE LD. DR THAT S URRENDER WAS MADE BY THE ASSESSEE, CONSEQUENT UPON A SEARCH, IS CONCERNED WE OBSERVED THAT SOMETIMES THERE ARE CASES WHERE TH ERE IS NO PRESSURE FROM THE DEPARTMENT TO MAKE A HUGE SURREND ER AND IN SOME CASES, THERE IS A PRESSURE FOR MAKING A SURREN DER, THUS TOTALITY OF CIRCUMSTANCES NEEDS TO BE CONSIDERED. A S DISCUSSED EARLIER, THIS IS A CASE OF PURE ESTIMATION AS THE A DDITION WAS SUBSTANTIALLY REDUCED BY THE LD. COMMISSIONER OF IN COME TAX (APPEALS) ITSELF AND THERE IS A CONTRADICTION IN TH E ASSESSMENT ORDER ITSELF, THEREFORE, IT MAY BE A GOOD CASE OF P ART QUANTUM ADDITION BUT NOT FOR IMPOSING/SUSTAINING PENALTY. AT THE SAME TIME, THE ASSESSEE HAS MADE A HUGE SURRENDER AND IF FURTHER PENALTY IS IMPOSED, IT WILL AMOUNT TO RUIN THE BUSI NESS OF THE ASSESSEE, RESULTING INTO ULTIMATE LOSS TO THE REVEN UE IN THE YEARS TO COME, CONSEQUENTLY, WE ARE OF THE VIEW, TH AT AT LEAST PENALTY, UNDER THE FACTS AVAILABLE ON RECORD, SHOUL D NOT HAVE BEEN IMPOSED/CONFIRMED. EVEN AFTER PART SUSTENANCE OF 29 M/S ETCO TELECOM LTD. ADDITION, STILL, THE END FIGURE IS BASED ON ESTIMAT ION. ESTIMATION IS OUTCOME OF SUBJECTIVE APPROACH OF THE INDIVIDUAL. IF WE SUSTAIN THE PART PENALTY EVEN AFTER A HUGE SU RRENDER MADE BY THE ASSESSEE THEN THE FAITH OF THE ASSESSEE WILL SHAKE. AS DISCUSSED EARLIER, IN THE CASE OF ESTIMATION OF INC OME, NO PENALTY IS LEVIABLE. THE LD. COUNSEL FOR THE ASSES SEE, DURING HEARING, ALSO PLEADED THAT THE SURRENDER WAS MADE B Y THE ASSESSEE TO BUY PEACE AND WITH A UNDERSTANDING WITH THE DEPARTMENT THAT NO PENALTY U/S 271(1)(C) OF THE ACT SHALL BE LEVIED. IN SUCH AS SITUATION, EVEN OTHERWISE, THE D ECISION FROM THE HONBLE APEX COURT IN CIT VS SURESH CHANDRA MIT TAL 251 ITR 9 (SC) AND FROM HONBLE PUNJAB & HARYANA HIGH C OURT IN CIT VS RAVAIL SINGH & COM. 254 ITR 191 (P& H) CLEAR LY COMES TO THE RESCUE OF THE ASSESSEE, CONSEQUENTLY, KEEPING I N VIEW, THE TOTALITY OF FACTS AND THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT AT LEAST PENALTY IS NOT SUSTAINABLE, THEREFORE, WE DELETE THE PENALTY. FINALLY, THE APPEALS OF THE REVENUE ARE DISMISSED A ND THAT OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF HEARING ON 17/12/2014. SD/- SD/- ( B.R. BASKARAN) (JOGINDE R SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED - 17/12/2014 30 M/S ETCO TELECOM LTD. F{X~{T? P.S/. . . ' - ' - ' - ' - ( (( ( .&/ .&/ .&/ .&/ 0 /$& 0 /$& 0 /$& 0 /$& / COPY OF THE ORDER FORWARDED TO : 1. 12 / THE APPELLANT 2. .312 / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. /5 .& , , / DR, ITAT, MUMBAI 6. 56 7 / GUARD FILE. ' - ' - ' - ' - / BY ORDER, 3/& .& //TRUE COPY// 8 88 8 / 9 9 9 9 ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI