INCOME TAX OFFICER, SURAT V. MOHIT PUKHRAJ KAWADIYA, Surat

ITA 788/SRT/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2625 (ITAT-SURAT)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-04-2024
• Assessment Year: 2009-2010
• Appeal Filed On: 15-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Set aside
• Section: 271(1)(c); 143(3); 250

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.787 & 788/SRT/2023 AYs: (2008-09 & 2009-10) (Physical court Hearing) Income Tax Officer, Ward- 3(3)(3), Surat, Room No.418, Aaykar Bhawan, Majura Gate, Surat-395001 Vs. Mohit Pukhraj Kawadiya, 144, Shreeji Awas, Mini Bazar, Varachha Road, Surat – 395006. èथायीलेखासं./जीआइआरसं./PAN/GIR No: APGPP2554R (अपीलाथŎ/Appellant) (ŮȑथŎ /Respondent) िनधाŊįरती की ओर से /Assessee by Shri Ketan Shah, AR राजˢ की ओर से /Revenue by Shri Ritesh Mishra, CIT(DR) सुनवाई की तारीख/Date of Hearing 29/04/2024 उद्घोषणा की तारीख/Date of Pronouncement 30/04/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: These two appeals by the Revenue are directed against the separate orders of the National Faceless Appeal Centre, Delhi (NFAC)/Learned Commissioner of Income Tax (Appeals) [in short, the Ld. CIT(A)] both dated 25.09.2023 deleting the penalties levied under section 271(1)(c) of the Income- tax Act, 1961 (in short, ‘the Act’) of Rs.1,79,26,600/- and Rs.2,27,98,500/- in order dated 30.03.2019 for the Assessment Years (AY) 2008-09 and 2009-10 respectively. In both appeals, the facts are common and grounds of appeal by the Revenue are similar except variance of amount. Hence, with the consent of the parties, both appeals are clubbed and heard together and are decided by the common and for sake of convenience and brevity. Grounds of appeals 2 787 & 788/SRT/2023 /AY.2008-09 – 2009-10 Mohit Pukhraj Kawdiya raised by the Revenue in ITA No.788/SRT/2023 for AY.2009-10 treated as “lead” case are as under: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty levied by the AO u/s 271(1)(c) of the I.T. Act, 1961 of Rs.2,27,98,500/- without appreciating the fact that the assessee claimed bogus purchases in its Return of Income in order to suppress taxable income thereby making himself liable for Penalty u/s 271(1)(c) of the Income- tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the order deleting the penalty of the Ld CIT(A) is not in accordance with the decision of Hon’ble jurisdictional High Court in the cases of Commissioner of Income Tax vs Subhas Trading Co. [1996] 86 Taxman 30 (Gujarat) and Commissioner of Income Tax vs S. P. Bhatt [1974] 97 ITR 440 (Guj.) 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty levied by the AO u/s 271(1)(c) of the Act of Rs.2,27,98,500/- without appreciating the fact that the Assessing Officer has correctly held that the assessee has failed to substantiate the transactions claimed in its return of income thereby evaded taxes to that extent. 4. On the facts and circumstances of the case and in the law, the Ld. CIT(A) erred in not appreciating the fact that the act of assessee clearly falls within the ambit of provisions of Explanation – 1 to section 271(1)(c) of the Act as the assessee had failed to offer an explanation or which was found by the AO to be false. 5. It is therefore prayed that the order of the Ld. CIT(A) may kindly be set aside and that of the Assessing Officer be restored. 6. The appellant craves leave to add, alter, amend and/or withdraw any grounds of appeal either before or during the course of hearing of the appeal.” 2. The facts of the case in brief are that the assessee filed his return of income for AY.2009-10 on 01.07.2009 declaring total income of Rs.1,76,440/-. Subsequently, assessment order under section 143(3) r.w.s. 147 of the Act was passed on 28.03.2016 determining total income at Rs.13,46,35,000/- after making addition of Rs.13,44,88,700/- on account of bogus purchases as accommodation entry. The penalty proceedings under section 271(1)(c) of the 3 787 & 788/SRT/2023 /AY.2008-09 – 2009-10 Mohit Pukhraj Kawdiya Act were initiated for furnishing inaccurate particulars of income and concealment of income. In the assessment order, the Assessing Officer made disallowance of Rs.13,44,88,700/-, being @ 25% of bogus purchases of Rs.53,79,54,800/-. The Assessing Officer (AO for short) had relied on the decision of the ITAT in case of Vijay Proteins Ltd, reported in 55 TTJ 76. Subsequently, the Ld. CIT(A) has restricted the disallowance to 12.5% of the total bogus purchases vide his order passed u/s 250 of the Act dated 31.08.2017. On further appeal, the disallowance has been again reduced to 6% of the total purchases by the ITAT vide its order dated 18.07.2022 in ITA Nos.245 & 246/SRT/2017 for the AYs.2008-09 and 2009-10. The AO has passed the penalty order based on the order of Ld. CIT(A) wherein disallowance of bogus purchases to the extent of 12.5% of the bogus purchases were sustained. The said addition was Rs.6,72,44,350/-, while levying the penalty, the AO has held that the assessee had knowingly and deliberately furnished inaccurate particulars of income to the extent of Rs.6,72,44,350/- to reduce his taxable income. He levied penalty at the rate of 100% of tax sought to be evaded amounting to Rs.2,27,98,500/-. 3. Aggrieved by the aforesaid penalty order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A). The Ld.CIT(A) in his order under section 250 of the Act dated 25.09.2023 has deleted the penalty levied by the AO. In the said order, the Ld. CIT(A) has discussed the facts of the case, submissions of the appellant and observed that the addition made by the AO 4 787 & 788/SRT/2023 /AY.2008-09 – 2009-10 Mohit Pukhraj Kawdiya was on estimation basis. The estimation of disallowances by the Assessing Officer has been further reduced by the Ld. CIT(A) and the Tribunal. In view of the facts, the Ld. CIT(A) observed that it cannot be said that there was “non- disclosure of particulars nor filing of inaccurate particulars by the appellant”. He agreed with the contention of the appellant that additions were based on estimation and as such penalty cannot be levied. He has relied on the decisions of the Mumbai Tribunal in cases of V. K. Ispat vs. ITO, in ITA Nos.2325 & 2326/Mum/2022, dated 24.01.2023, Mukesh Sahaligram Sharda vs. ITO, in ITA No.1907 & 1908/Mum/2021, dated 22.02.2023 and PCIT vs. M/s Fancy Diamond India Pvt. Ltd., in ITA No.5384/Mum/2019, dated 17.06.2022. Following the above decisions, he has deleted the penalty levied by the AO under section 271(1)(c) of the Act. Aggrieved by the order of the Ld. CIT(A), Revenue has filed the present appeal before the Tribunal. 4. The Learned Commissioner of Income Tax – Commissioner of Income- tax-Departmental Representative (Ld. CIT-DR) has strongly relied on the order of the Assessing Officer and has stated that against the income of Rs.1,46,300/-, addition of Rs.6,72,44,350/- has been sustained by the Ld. CIT(A). Hence, penalty under section 271(1)(c) has been rightly levied by the Assessing Officer because the assessee has furnished inaccurate particulars of income to the extent of Rs.6,72,54,350/-. 5. On the other hand, Learned Authorized Representative (Ld. AR) of the assessee has strongly relied from the order of the ld. CIT(A). He argued that 5 787 & 788/SRT/2023 /AY.2008-09 – 2009-10 Mohit Pukhraj Kawdiya both the addition as well as subsequent confirmations by the Ld. CIT(A) and order of ITAT are based on estimation. The AO disallowed 25% of the bogus purchase, which was subsequently reduced to 12.5% by the Ld. CIT(A). On further appeal, the ITAT has reduced the addition to 6% of the disputed purchases. No penalty can be levied due to additions based on estimation. 6. We have carefully heard the submission made by the rival sides and examined the orders of the lower authorities. Undisputedly, the addition made on account of bogus purchases were partially confirmed by the Ld. CIT(A), which was subsequently reduced by the ITAT. Initially, the AO himself added 25% of the disputed purchases, which was reduced to 12.5% by the Ld. CIT(A). On further appeal by the Revenue as well as the assessee, the Tribunal in its consolidated order in 19 Appeals / cross-appeals in ITA Nos.1519 & 1520/Ahd/2017, dated 18.07.2022 decided the issue and allowed further relief to the appellants by the reducing the estimated addition from 12.5% to 6% of the disputed purchases. The case of the appellant is included in this bunch of appeals in ITA No. 245 & 246/SRT/2017 (AY.2008-09 & 2009-10), dated 18.07.2022. The relevant portion is added para nos. 27, 28, 29, 30 and 31 of the consolidated order. 7. It is clear from the order of the Tribunal that the Tribunal restricted the addition of bogus purchase to the extent of 6% of the disputed purchases. On examining the facts, we find that the assessee has failed to discharge its onus of proving the genuineness of the purchase. However, during the assessment, 6 787 & 788/SRT/2023 /AY.2008-09 – 2009-10 Mohit Pukhraj Kawdiya the addition was made on estimation @ 25% of the disputed purchase. In first appeal, the addition was restricted to 12.5% and on second appeal to the Tribunal, it was further reduced to 6% of the disputed purchases. It is, therefore, clear that the entire addition right from the assessment stage to the Tribunal was merely on estimation and there is no definite findings on the quantum of concealment of income by the assessee. It is accepted legal position that penalty under section 271(1)(c) of the Act levied on additions made purely on estimation is not sustainable. Such a view has been taken by the Hon’ble jurisdictional High Court in the case of CIT vs Subhas Trading Co. (1996) 86 Taxman 30 (Guj.), Navjivan Oil Mills vs CIT (2002) 124 Taxman 392 (Guj), CIT vs Valimkbhai H. Patel (2006) 280 ITR 487 (Guj) and ITO vs Bombaywala Readymade Stores (2015) 55 taxmann.com 258 (Guj.). Similar view has also been taken by other Hon’ble High Courts in CIT vs Krishi Tyre Retreading and Rubber Industries, 360 ITR 580 (Raj.) and CIT vs. Sangur Vanaspati Mills Ltd., 303 ITR 53 (P & H). Respectfully following the decisions cited supra, we hold that penalty u/s 271(1)(c) of the Act is not sustainable in the present case. Accordingly, the decision of Ld. CIT(A) is upheld and appeal of the Revenue is dismissed. ITA No.787/SRT/2023 for AY.2008-09: 8. The facts of the case are identical to the facts of the case for AY.2009-10 decided above. The grounds of appeal are also similar to those in AY.2009-10 except variance of amount. Hence, following the reasons given above in ITA 7 787 & 788/SRT/2023 /AY.2008-09 – 2009-10 Mohit Pukhraj Kawdiya No.788/SRT/2023 for AY.2009-10, the order of the Ld. CIT(A) is upheld and the appeal for the Revenue is dismissed. 9. In combine result, both the appeals of the Revenue are dismissed. Order is pronounced on 30/04/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER स ू रत /Surat Ǒदनांक/ Date: 30/04/2024 Dkp Outsourcing Sr.PS /SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat