VIRMABHAI AJABAJI PATEL,MUMBAI V. ITO 19(3)(5), MUMBAI, MUMBAI

ITA 544/MUM/2025

AI Insights

The case involves Virmabhai Ajabbaji Patel, who appealed against the penalty imposed by the Income Tax Officer (ITO) under Section 271(1)(c) for alleged concealment of income and furnishing of inaccurate particulars. The penalty was based on additions made to the assessee's income due to non-genuine purchases, which were estimated at a profit rate of 12.5%. The Tribunal examined whether such an estimation basis for addition to income justifies a penalty under Section 271(1)(c). The Tribunal referenced several precedents where it was held that no penalty is leviable if the addition is made on an estimated basis. Consequently, the Tribunal allowed the appeal, citing these precedents and directing the deletion of the penalty.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312415 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Other Referred Cases: KP Sanghvi & Sons LLP Vs. ACIT, ITO Vs. Ashok Industrial Corporation, Mun Gems vs. Asst. CIT, Shri Poonam K. Prajapati vs. ITO, ACIT vs. M/s. Fancy Diamonds India Pvt. Ltd., CIT vs. Krishi Tyre Retreading and Rubber Industries, CIT vs. Sangrur Vanaspati Mills Ltd., CIT vs. Subhash Trading Co. Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITA P. KAUSHIK
• Assessee Lawyers: NIRAV SHAH; REGISTERED POST
• Keywords: Bogus purchase; Accommodation entries; Bogus
• Section: 147; 148; 142(1); 271(1)(c); 133(6)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH MUMBAI BEFORE OM PRAKASH KANT, ACCOUNTANT MEMBER & SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA No. 544/Mum/2025 (Assessment Year: 2009-10) Virmabhai Ajabbaji Patel 156, Room No. 6, Mistry Bldg, 2nd Kumbharwala (Vijesh Metal) – 400004. Vs. ITO – 19(3)(5) Room No. 201, matru Mandir Bldg, Tardeo Road, Mumbai. PAN/GIR No. AGKPP3389B (Applicant) (Respondent) Assessee by Mr. Nirav Shah Revenue by Smt. Kavita P. Kaushik, Sr. AR Date of Hearing 21.04.2025 Date of Pronouncement 30.04.2025 आदेश / ORDER PER RAJ KUMAR CHAUHAN, JM: This appeal is directed against the order dated 14.11.2024 passed by the National Faceless Appeal Centre, Delhi (herein after referred as “Ld. CIT(A)” u/s 250b of the Income-tax Act, 1961 (herein after referred as “the Act”), wherein the penalty imposed by the Ld. AO u/s 271(1)(c) of the Act was confirmed. 2 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai 2. The brief facts as culled out from the proceeding before the lower authorities are that the assessee filed return of income for the A.Y 2009-10 on 26.09.2009, declaring total income of Rs. 2,79,090/- and the return was processed u/s 143(1) of the Act. The case was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act dated 07.03.2014 after recording the reasons. It is alleged that the assessee who is engaged in the business of trading in ferrous and nonferrous metals under the name and style of proprietorship concern “M/s Vijesh Metal (Ind)” and as per the information received from DGIT (Inv), Mumbai, the assessee was beneficiary of bogus purchases through bogus bills and conducting various non genuine transactions. Subsequently notice u/s 142(1) of the Act dated 11.07.2014 was issued to the assessee and assessee was asked to furnish the details including correct and complete addresses of these parties, purchase details, invoices / bills, copies of ledger accounts, details of transportation of goods etc. The assessee furnished the addresses of those mentioned parties and thereafter to verify the genuineness of the transactions, the AO has issued notice u/s 133(6) of the Act to the said parties at the addresses provided by the assessee by registered post. However, no notice could be served and returned un-served by the postal authorities with the remarks “not known” or “no such address” or “left” etc. The AO after considering 3 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai the reply filed by the assessee and considering the fact that the assessee has recorded such purchases in the books of accounts, and after taking the profit element embedded in such purchases calculated on an amount of Rs. 15,47,800/- being 12.5% of total non genuine purchases of Rs. 1,23,82,428/- and has added to the total income of the assessee. Further the AO had initiated proceedings u/s 271(1)(c) of the Act. 3. The said assessment order was challenged and confirmed by the Ld. CIT(A) against which an appeal vide ITA No. 4121/Mum/2018 was filed which was disposed off on 08.05.2019 by the Tribunal observing that no cogent reason has been given for working out the profit element embedded in the purchases under consideration @ 12.5% of the aggregate value, the matter was accordingly restored to file of the AO with a direction to restrict the addition as regard the bogus / non genuine purchases by bringing the gross profit rate of such purchases at the same rate as that of the other genuine purchases. 4. In the penalty proceedings the AO vide order dated 29.03.2019 passed u/s 271(1)(c) of the Act has imposed penalty of Rs. 4,78,270/- being 100% of the amount of the tax sought to be evaded by concealment of particulars of income of Rs. 15,47,800/- and also for furnishing 4 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai inaccurate particulars of such income. The said order of imposing penalty was challenged before the Ld. CIT(A), who has confirmed the same by passing the impugned order, challenged in appeal before us. 5. Thus aggrieved by the order of Ld. CIT(A) the present appeal has been filed and following ground has been raised by the appellant / assessee. 1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the levy of penalty u/s 271(1)(c) of the Income Tax Act of Rs. 4,78,270/-. 2. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the levy of penalty u/s 271(1)(c) in the instant case where the disallowance/ addition is made on account of estimated basis, being Gross profit ratio on alleged non genuine purchases. 3. Your Appellant craves leave to add, to alter, or to amend the aforesaid grounds of Appeal. 6. We have heard the Ld. AR and the Ld. DR and examined the record. The Ld. AR at the very outset submitted that since admittedly the addition was made on estimation basis, therefore imposing of the penalty was not legally justified and was against the settled principle of law and the various legal precedents of different Tribunals as well as various Hon’ble High Courts. The Ld. AR has referred the judgment of the Coordinate Bench of this 5 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai Tribunal in the case of KP Sanghvi & Sons LLP Vs. ACIT in ITA No. 3565/Mum/2023 order dated 29.02.2024 and also in the case of ITO Vs. Ashok Industrial Corporation in ITA No. 4160/Mum/2024 order dated 30.12.2024. In support of his above arguments, he has also referred the case of ITA No. 961 to 963/Mum/2023. For the sake of brevity we may refer order the ITA No. 3565/Mum/2023 (supra) and would like to refer relevant portion of the judgment extracted herein below: “7. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that it is a settled proposition of law that when addition has been made on estimate basis, no penalty can be levied u/s. 271(1)(c) of the Act. The Id. AR relied on the decision of the co-ordinate bench in the case of Mun Gems vs. Asst. CIT [2023] 108 ITR(T) 276 (Mum-Trib), M/s. V. K. Ispat & Alloys (in ITA No. 2326 & 2325/Mum/2022 ITA No. 3565/Mum/2023 (AY.2011-12) KP Sanghvi & Sons LLP vs. Asst. CIT vide order dated 24.01.2023 and Shri Poonam K. Prajapati vs. ITO (in ITA No. 1953/Mum/2022 vide order dated 30.11.2022). 8. The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and relied on the orders of the lower authorities. 9. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee is alleged to have purchased cut and polished diamonds from (1) M/s. Aadi Impex (2) M/s. Kalash Enterprises and (3) M/s. Daksh Diamonds which aggregates to Rs.2,47,45,023/-- The ld. A.O. held the same to be bogus purchase on the premise that the assessee has received accommodation entries from the above mentioned entities which are sought to be managed and controlled by Bhanwarlal Jain & Famil and Rajendra Jain Group concerns. The assessee contended that the purchases 6 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai and sales are duly recorded in purchase and sales register that form part of the books of accounts of the assessee and the quantitative details of the cut and polished diamonds are reflected in the tax audit report which the assessee is bound to u/s.44AB of the Act. The assessee further stated that it is said to have filed the relevant documents such as copy of invoices, ledger extracts, payment documents, bank account statement, PAN/VAT registration details of above parties, etc. for the purpose of substantiating its claim. The submission of the assessee was found to be not tenable to the ld. A.O., thereby holding the same to be bogus purchases. The ld. A.O. added 100% of the alleged purchase made from the above party. 10 The first appellate authority, on the other hand, in a appeal prayed by the assessee, restricted the addition to 5% of the alleged bogus purchase and made an addition of ITA No. 3565/Mum/202 3 (A.Y.2011-12) K P Sanghvi & Sons LLP vs. Asst. CIT Rs.12,37,251/- as against the addition made by the ld. A.O. amounting to Rs.2,47,45,023/-. The impugned penalty of Rs.4,20,570/- was levied on the quantum of addition confirmed by the ld. CIT(A). 11. In the above factual matrix, the ld. AR had relied on the following decisions where the co-ordinate benches have held that the penalty u/s. 271(1)(c) of the Act cannot be levied, where addition has been made on estimate basis on alleged bogus purchases. The ld. AR brought our attention to the operative part of the order of the co-ordinate bench in the case of M/s. V. K. Ispat & Alloys (supra) which we have extracted hereunder for ease of reference: “8. From the above facts, it is evident that the said addition made in the case of the assessee pertains to the addition made on bogus purchase on estimated basis. It is also pertinent to point out that the A.O. has arrived at the percentage of the gross profit based on the average gross profit earned by the assessee for A.Ys. 2008-09, 2009-10 and 2010-11. We would like to place our reliance in the decision of the co- ordinate bench in ITA No.5384/Mum/2019 in the case of ACIT vs. M/s. Fancy Diamonds India Pvt. Ltd. vide order dated 7 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai 17.06.2022, which has held that in case where the addition is made on estimated basis, the penalty u/s. 271(1)(c) of the Act is not leviable. The Tribunal has relied on the decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries reported as 360 ITR 580, the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. reported as 303 ITR 53 and Hon'ble Gujarat High Court in the case of CIT vs. Subhash Trading Co. Ltd. reported as 221 ITR 110. It is observed that all the above mentioned decisions have reiterated the proposition that the penalty u/s. 271(1)(c) of the Act cannot be levied in case where the addition is made on estimated basis. It is evident that there are plethora of other decisions by the Hon'ble High Court's and various benches of the tribunal which had held the said proposition. In the present case in hand, it is observed that the A.O. has made addition @ 2.58% + 3% on VAT which was restricted by the ld. CIT(A) to 2.58% of gross profit on the bogus purchases made by the assessee with the hawala parties. This clearly indicates that the addition in assessee's case was made on estimated basis. 9. We are of view that the penalty u/s. 271(1)(c) of the Act cannot be levied where the addition is made on estimated basis. From the above observation and by respectfully following the above decisions, we hereby delete the penalty levied by the A.O. and find no justification in the order of the ld. CIT(A)”. 12. As the facts of this appeal are identical to the above said decision, we hereby hold that the penalty u/s. 271(1)(c) of the Act cannot be levied where the addition has been ITA No. 3 565/Mu m/2023 (A.Y.2011-12) KP Sanghvi & Sons LLP vs. Asst. CIT made on estimate basis on the gross profit on alleged bogus purchase. We, therefore, direct the ld. A.O. to delete the impugned penalty levied u/s. 271(1)(c) of the Act. 13. In the result, the appeal filed by the assessee is allowed”. 7. On the other hand Ld. DR supported the orders passed by the lower authorities stating that since the 8 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai assessee has not been able to show the genuineness of the purchases and hence he has to be held responsible for furnishing inaccurate particulars of income and as such penalty imposed is justified. 8. What is concealment of income or inaccurate particulars of such income as contemplated by Section 271(1)(c), has been explained by the Hon'ble Supreme Court in the case of the CIT Vs. Reliance Petro Products (P.) Ltd. as reported in 322 ITR 158 wherein it has been held as under: - \"A glance at the provision of s. 271(1)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. As per Law Lexicon, the meaning of the word \"particular\" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word \"particulars\" used in the s. 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must be shown that the conditions under s. 271(1)(c) must exist before the penalty 9 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income.\" 9. On perusal of the case in hand we have noticed that the initial return was filed u/s 143 of the Act and the same was processed and accepted u/s 143(1) of the Act. The case was reopened for reassessment u/s 147 of the Act and the addition resulted subsequently on account of bogus purchases and gross profit was estimated @ 12.5% and the addition was thus made on estimation basis. In these facts and circumstances, we are not convinced by the conclusion of the Ld. AO which has been confirmed by the Ld. CIT(A) that when the addition was made on the estimation basis, it would fall within the mischief of Sec. 271(1)(c) of the Act making it a case of concealment of income or furnishing inaccurate particulars of income by the assessee. Moreover, the facts and circumstances of the present case are squarely covered by the judgment of the Coordinate Bench referred and relied by the Ld. AR and we respectfully follow the Ld. Coordinate Bench in ITA No. 3565/Mum/2023 (supra) and are of considered opinion that the revenue has failed to show that the assessee has concealed the particulars of income or has furnished inaccurate particulars of such income and thus the case of the assessee is not covered u/s 271(1)(c) of the Act. Accordingly the penalty imposed on accepting addition 10 ITA No. 544/Mum/2025 Virmabhai Ajabaji Patel, Mumbai made on estimation basis is not sustainable. The grounds of appeal are accordingly decided in favour of the assessee. We accordingly direct the Ld. AO to delete the penalty amount. 10. In the result, the appeal is accordingly allowed in the above terms. Order pronounced in the open court on 30.04.2025. Sd/- Sd/- (OM PRAKASH KANT) (RAJ KUMAR CHAUHAN) ACCOUNTATN MEMBER JUDICIAL MEMBER Mumbai, Dated 30/04/2025 KRK, PS आदेश की \bितिलिप अ\u000eेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u000eथ / The Respondent. 3. संबंिधत आयकर आयु\u0019 / The CIT(A) 4. आयकर आयु\u0019(अपील) / Concerned CIT 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मु\u0003बई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, स\u000eािपत ित //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु\u0003बई मु\u0003बई मु\u0003बई मु\u0003बई / ITAT, Mumbai "