M/S. WAY FLOORS & FABRICS, MUMBAI V. ITO-26(3)(5), MUMBAI

ITA 764/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3349 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VINOD KUMAR
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Bogus purchase; Invalid notice; Initiation of penalty proceedings
• Section: 271(1)(c); 43B; 143(3); 274; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G, BENCH MUM BAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.764/MUM/2019 ( ASSESSMENT YEAR: 2009-10 ) WAY FLOORS & FABRICS 171/2, PREM KUNJ JAIN SOCIETY SION (WEST) MUMBAI-400 002 VS. ITO-26(3)(5) ROOM NO.504, C-11, 5 TH FLOOR, PRATYAKSHAKAR BHAWAN, BKC BANDRA(E) MUMBAI-400 051 PAN/GIR NO. A AAFW6813F APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI JITENDRA SINGH, AR REVENUE BY SHRI V.VINOD KUMAR, DR DATE OF HEARING 02/03 /2020 DATE OF PRONOUNCEME NT 06 /03/2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)38, MUMBAI, DATED 10/09/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) - 38, MUMBAI [HEREINAFTER REFERRED TO AS THE 'LD. CIT(A)'] ERRED IN PASSING THE ORDER DATED 10.09.2018 UPHOLDING THE ORDER PASSED BY INCO ME TAX OFFICER, WARD - 26(3)(5), MUMBAI [HEREINAFTER REFERRED TO AS 'LD. A.O.'] LEVYING CONCEALMENT PENALTY OF RS.2,10,000/- WITHOUT APPREC IATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, THE ORDER DATED 10 .09.2018 PASSED BY LD. CIT(A) IS BAD IN LAW AND THE SAME MAY BE QUASHE D. 2. NOTICE ISSUED UNDER SECTION 271(1)(C) OF THE ACT WITHOUT RECORDING ANY SATISFACTION IS BAD IN LAW ITA NO.764/MUM/2019 WAY FLOORS & FABRICS 2 I. THE PENALTY NOTICE DATED 25.03.2015 ISSU ED UNDER SECTION 274 R.W.S 271 OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] IS VOID AB INITIO AS THE SAME IS NOT DISCERNA BLE WHETHER THE PENALTY PROCEEDINGS ARE INITIATED FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HENCE, THE NOTICE ISSUED UNDER SECTION 274 R.W.S 271 OF THE ACT AND THE SUBSEQUENT PENALTY ORDER PASSED UNDER SECTION 271(1)(C) OF THE ACT ARE BAD IN LAW AND THE SAME MAY BE QUASHED. II. THE PENALTY ORDER DATED 22.09.2015 PASSE D UNDER SECTION 271(1)(C) OF THE ACT IS BAD IN LAW AS THE PENALTY HAS BEEN LEVIED ON THE BASIS OF BOTH THE LIMBS WHICH IS NOT PERMISSIBLE AS PER THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT. THUS, THE PENALTY ORD ER PASSED UNDER SECTION 271 (1)(C) OF THE ACT IS BAD IN LAW AND THE SAME MAY BE DELETED. 3. LEVY OF CONCEALMENT PENALTY ON AD-HOC AD DITION MADE ON ACCOUNT OF NON GENUINE PURCHASES UNJUSTIFIED . I. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. IN LEVYING CONCEALMENT PENALTY ON THE AD-HOC DISALLOWANCE OF R S.4,44,885/- BEING 12.5% OF PURCHASES MADE FROM 5 PARTIES BY TRE ATING THE SAME AS NON GENUINE RELYING ON THE INVESTIGATION CA RRIED ON BY THE SALES TAX DEPARTMENT WITHOUT APPRECIATING THE F ACT AND CIRCUMSTANCES OF THE CASE. THE APPELLANT, THEREFORE , PRAYS THAT LEVY OF CONCEALMENT PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. II. THE LD. CIT(A) FAILED TO APPRECIATE THE APPELLANT HAS FURNISHED ALL RELEVANT EVIDENCES IN ITS POSSESSION TO PROVE THE G ENUINENESS OF PURCHASE. HOWEVER, THE DISALLOWANCE WAS MADE ON THE BASIS OF CERTAIN MATERIAL COLLECTED AT THE BACK OF APPELLANT WHICH H AS NOT BEEN FURNISHED TO THE APPELLANT FOR REBUTTAL. THE APPELLANT, HAS A LSO BEEN DENIED AN OPPORTUNITY TO CROSS EXAMINE THE DEPARTMENT'S WITNE SS. THUS, THE LEVY OF CONCEALMENT PENALTY ON THE AD-HOC DISALLOWANCE OF P URCHASES TREATING THE SAME AS NON GENUINE IS UNJUSTIFIED AND THE SAME MAY BE DELETED. 4. LEVY OF CONCEALMENT PENALTY ON DISALLOWAN CE MADE UNDER SECTION 43B UNJUSTIFIED I. THE LD. CIT(A) ERRED IN CONFIRMING THE A CTION OF LD. A. O. IN LEVYING PENALTY ON THE DISALLOWANCE OF RS.2,20,055/- INVOKI NG THE PROVISIONS OF SECTION 43B OF THE ACT WITHOUT APPRECIATING THE F ACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT, THEREFORE, PRAYS THAT LEVY OF CONCEALMENT PENALTY ON THE DISALLOWANCE OF RS.2,20,055/- UNDER SECTION 43B IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. II. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE S ERVICE TAX WAS NOT PAID TO THE GOVERNMENT TREASURY, AS THE APPELLANT HAS NOT R ECEIVED THE SAME FROM ITS CLIENTS. HENCE, THE DISALLOWANCE OF RS.2,2 0,055/- UNDER SECTION 43B OF THE ACT IS UNJUSTIFIED. THE APPELLANT, THERE FORE, PRAYS THAT THE LEVY ITA NO.764/MUM/2019 WAY FLOORS & FABRICS 3 OF CONCEALMENT PENALTY ON THE ABOVE DISALLOWANCE IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, DELETE OR RESCIND ANY OF THE ABOVE GROUNDS OF APPEAL MENTIONED HEREIN ABOVE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF DEALERS IN FABRICS AND CARPET, FILE D ITS RETURN OF INCOME FOR AY 2009-10 ON 02/09/2009, DECLARING TOTA L INCOME OF RS.12,68,790/-. THE ASSESSMENT HAS BEEN, SUBSEQUENT LY REOPENED U/S 147 OF THE I.T.ACT, 1961 AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) R.W.S. 147 OF THE I.T.ACT, 196 1 ON 25/03/2015, DETERMINING THE TOTAL INCOME AT RS.20,44,290/- BY M AKING ADDITIONS TOWARDS 12.5% PROFIT ON ALLEGED BOGUS PURCHASES FRO M HAWALA/SUSPICIOUS DEALERS AND DISALLOWANCES OF SERV ICE TAX PAYABLE U/S 43B OF THE I.T.ACT, 1961. THEREAFTER, A SHOW C AUSE NOTICE U/S 274 R.W.S. 271(1)(C) OF THE I.T.ACT, 1961, DATED 25 /03/2015 HAS BEEN ISSUED AND CALLED UPON THE ASSESSEE TO EXPLAIN AS T O WHY, PENALTY SHALL NOT BE LEVIED FOR CONCEALMENT OF PARTICULARS OF INCOME AND FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IN RES PONSE, THE ASSESSEE VIDE LETTER, DATED 06/05/2015 SUBMITTED TH AT IT HAS NEITHER, FURNISHED INACCURATE PARTICULARS OF INCOME, NOR CON CEALED PARTICULARS OF INCOME AND ADDITIONS MADE TOWARDS ALLEGED BOGUS PURCHASES IS ON ESTIMATION BASIS AND ALSO, THE ADDITION ON ACCOU NT OF DISALLOWANCES U/S 43B OF THE I.T.ACT, 1961, IT HAS FURNISHED NECESSARY EVIDENCES, INCLUDING DETAILS OF PAYMENT. THEREFORE, IT CANNOT BE SAID THAT IT HAS DELIBERATELY CONCEALED P ARTICULARS OF INCOME, SO AS TO EVADE PAYMENT OF TAXES. THE LD. AO AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AN D ALSO TAKEN NOTE OF FACT THAT THE ASSESSEE HAS FURNISHED INACCU RATE PARTICULARS OF ITA NO.764/MUM/2019 WAY FLOORS & FABRICS 4 INCOME, THEREBY CONCEALED PARTICULARS OF INCOME LEV IED PENALTY OF RS.2,10,000/-, WHICH IS EQUAL TO 100% OF TAX SOUGHT TO BE EVADED. 4. AGGRIEVED BY THE PENALTY ORDER, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE LD. AO AND ARGUED THAT THERE IS NO DELIBERATE ATTEMPT TO EVADE PAYMEN T OF TAXES, IN RESPECT OF ADDITIONS MADE TOWARDS ALLEGED BOGUS PUR CHASES, AS WELL AS DISALLOWANCES OF UNPAID LIABILITY U/S 43B OF THE I.T.ACT, 1961. THE LD.CIT(A) AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSE AND ALSO BY RELIED UPON CERTAIN JUDICIAL PRECEDENTS, IN CLUDING THE DECISION OF HONBLE KERALA HIGH COURT, IN THE CASE OF CIT V S. K.P.MADHUSUDANAN (2001) 165 CTR 353 OBSERVED THAT T HE ASSESSEE HAS FAILED TO PROVE THAT EXPLANATION PUT F ORTH IS BONAFIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED IN THE RETURN OF INCOME SO FILED. THEREFORE, HE OPINED THAT IT IS A FIT CASE FOR IMPOSING PENALTY U/S 271(1)(C) OF THE I.T.ACT, 1961 AND ACCO RDINGLY, AFFIRMED PENALTY LEVIED BY THE LD. AO AND DISMISSED, APPEAL FILED BY THE ASSESSEE. AGGRIEVED BY THE LD.CIT(A) ORDER, THE ASS ESEE IS IN APPEAL BEFORE US. 5. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE L D.CIT(A) HAS ERRED IN CONFIRMED PENALTY LEVIED U/S 271(1)(C) OF THE I.T.ACT, 1961, WITHOUT APPRECIATING THE FACT THAT THE LD. AO HAS N OT RECORDED ANY SATISFACTION, AS REQUIRED UNDER LAW BEFORE INITIATI ON OF PENALTY PROCEEDINGS, UNDER WHICH LIMB, THE PROPOSED PENALTY PROCEEDINGS WAS INITIATED, WHICH IS EVIDENT FROM THE FACT THAT THE LD. AO HAS INITIATED PENALTY PROCEEDINGS FOR CONCEALMENT OF PA RTICULARS OF ITA NO.764/MUM/2019 WAY FLOORS & FABRICS 5 INCOME AND FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IN THIS REGARD, HE RELIED UPON THE DECISION OF ITAT, MUMBAI D BENCH IN THE CASE OF MADHAV N. BHATKULY VS ACIT IN ITA.NO.7224/M UM/2018. 6. THE LD. DR, ON THE OTHER HAND STRONGLY SUPPORTIN G ORDER OF THE LD.CIT(A) SUBMITTED THAT THERE IS NO MERIT IN ARGUM ENTS ADVANCED BY THE LD. AR FOR THE ASSESSEE, BECAUSE THE LD. AO HAS RECORDED CLEAR SATISFACTION, AS REQUIRED UNDER LAW, WHICH IS EVIDENT FROM THE FACT THAT HE HAS CLEARLY MENTIONED IN HIS ASSESSMEN T ORDER ABOUT, LIMB UNDER WHICH THE PROPOSED PENALTY PROCEEDINGS W AS INITIATED. THE LD.CIT(A) AFTER APPRECIATING PROPER FACTS HAS R IGHTLY CONFIRMED PENALTY LEVIED BY THE LD. AO AND HIS ORDER SHOULD B E UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI D BENCH IN THE CASE OF MAD HAV N. BHATKULY VS ACIT IN ITA NO.7224/MUM/2018, WHERE UN DER IDENTICAL SET OF FACTS, THE TRIBUNAL BY FOLLOWING VARIOUS J UDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF CIT VS M/S. SSAS EMERALD MEADOWS (2016) 242 TAXMANN.CO M 180 (SC), HELD THAT FROM THE NOTICE ISSUED BY THE LD. A O U/S 274 R.W.S. 271(1)(C) OF THE I.T.ACT, 1961 AND FROM THE SATISFA CTION RECORDED DURING THE ASSESSMENT PROCEEDINGS, IT IS NOT DISCER NABLE FROM THE RECORDS THAT WHETHER, THE PENALTY PROCEEDINGS ARE I NITIATED FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNIS HING INACCURATE PARTICULARS OF INCOME AND CONSEQUENTLY, THE WHOLE P ENALTY PROCEEDINGS BECOMES VOID AB INITIO AND LIABLE TO BE QUASHED. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- ITA NO.764/MUM/2019 WAY FLOORS & FABRICS 6 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. IT IS AN ADMITTED POSITION OF LAW THAT BEFORE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C), THE LD. AO SHALL ARRIVE AT A CLEAR SATIS FACTION AS TO WHETHER, SUCH PENALTY PROCEEDINGS ARE BEING INITIATED FOR CO NCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IF, THE LD. AO HAS NOT RECORDS CLEAR SATISFACTION AS RE QUIRED UNDER THE LAW, EITHER IN ASSESSMENT PROCEEDINGS OR AT THE TIME OF ISSUING SHOW CAUSE NOTICE U/S 274 R.W. 271(1)(C), THEN THE WHOLE PENAL TY PROCEEDINGS, CONSEQUENT TO INCORRECT SATISFACTION OR FOR NON SAT ISFACTION BECOMES VOID AB-INITIO FURTHER, IT IS ALSO A SETTLED POSITION OF LAW THAT THE LD. AO HAS TO CATEGORICALLY SPECIFY THE LIMB UNDER WHICH, THE PEN ALTY PROCEEDINGS HAS BEEN INITIATED. IF PENALTY PROCEEDINGS, IS INITIAT ED FOR ONE LIMB AND LEVIED FOR DIFFERENT LIMB, THEN THE WHOLE PENALTY PROCEED INGS, BECOMES INVALID AND VOID AB-INITIO. THIS LEGAL PROPOSITION IS SUPP ORTED BY THE DECISION OF HONBLE E BOMBAY HIGH COURT, IN THE CASE OF CIT VS SAMSON PERINCHERY IN ITA NO. 1154/MUM/2015, DATED 05/12/2017. THIS LE GAL PROPOSITION IS FURTHER SUPPORTED BY THE DECISION OF HONBLE SUPREM E COURT, IN THE CASE OF CIT VS M/S SSAS EMERALD MEADOWS (2016) 242 TAX MANN 180 (SC) , WHERE THE HONBLE SUPREME COURT HAS UPHELD THE DECI SION OF HONBLE KARNATAKA HIGH COURT, IN THE CASE OF CIT VS. MANJUN ATHA COTTON & GINNING FACTORY (2013) 359 ITR 565. IN THIS CASE, O N PERUSAL OF ASSESSMENT ORDER, AS WELL AS PENALTY ORDER , IT IS VERY CLEAR FROM THE RECORDS THAT THE LD. AO HAS NOT ARRIVED AT CLEAR SA TISFACTION AS REQUIRED UNDER THE ACT, EVEN IN ASSESSMENT ORDER AND SAID LA PSES IS CONTINUED IN SHOW CAUSE NOTICE ISSUED US 274 R.W.S. 271(1)(C) OF THE I.T.ACT, 1961. FURTHER, EVEN IN PENALTY ORDER, THE LD. AO HAS NOT ARRIVED AT CLEAR SATISFACTION, WHICH IS EVIDENT FROM THE FACT THAT HE HAS CONCLUDED HIS PENALTY PROCEEDINGS AND LEVIED PENALTY U/S 271(1)(C ) ON BOTH LIMBS. FROM THE ABOVE, IT IS VERY CLEAR THAT THE SATISFACTION R EQUIRED TO BE RECORDED BEFORE INITIATION OF PENALTY PROCEEDINGS U/S 271(1) (C) IS NOT DISCERNABLE, WHETHER THE PENALTY PROCEEDINGS ARE INITIATED FOR C ONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME, EITHER IN ASSESSMENT ORDER OR IN THE SHOW CAUSE NOT ICE ISSUED FOR LEVYING PENALTY. THEREFORE, WE ARE OF THE CONSIDERED VIEW T HAT THE PENALTY PROCEEDINGS INITIATED U/S 271(1)(C) OF THE ACT, CON SEQUENT TO VAGUE NOTICE IS VOID AB INITIO AND LIABLE TO BE QUASHED. THEREFO RE, WE DIRECT THE LD. AO TO DELETE PENALTY IMPOSED U /S 271(1)(C) OF THE I.T .ACT, 1961. 8. IN THIS CASE, ON PERUSAL OF FACTS, WE FIND THAT THE LD. AO HAS INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T.ACT, 1961, FOR BOTH LIMBS, I.E, FOR CONCEALMENT OF PARTICULARS OF INCOME AND FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE SA ID LAPSES CONTINUED IN SHOW CAUSE NOTICE ISSUED U/S 274 R.W. S. 271(1)(C) OF ITA NO.764/MUM/2019 WAY FLOORS & FABRICS 7 THE I.T.ACT, 1961, WHERE THE LD. AO HAS ISSUED PRIN TED NOTICE WITHOUT STRIKING OF INAPPLICABLE PART OF NOTICE. FROM THE A BOVE, IT IS VERY CLEAR THAT THE LD. AO HAS NOT ARRIVED AT CLEAR SATISFACTI ON, AS REQUIRED UNDER LAW BEFORE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T.ACT, 1961,WHETHER SAID PENALTY PROCEEDINGS HAS BEEN INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME OR FOR CONCEALMENT OF PARTICULARS OF INCOME. THEREFORE, WE ARE OF THE CON SIDERED VIEW THAT THE WHOLE PENALTY PROCEEDINGS CONSEQUENT TO VAGUE O R INVALID NOTICE IS VOID AB INITIO AND LIABLE TO BE QUASHED AND HENCE, WE QUASHED PENALTY ORDER PASSED BY THE LD. AO U/S 271(1)(C) OF THE I.T.ACT, 1961,. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 06 /03/ 2020 SD/- ( RAVISH SOOD ) SD/- ( G. MANJUNATHA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 06/03/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//