Case Law Details
DCIT Vs Sri Anil J Kothari (ITAT Ahmedabad)
AO has made addition on account of unverifiable purchases at Rs.2,70,40,363/- being entire purchases which were reduced to 0.25% of total disputed purchases. Thus, the addition was estimated @ 0.25% of transaction amount, which cannot therefore, be termed as conclusive proof of concealment of income or furnishing inaccurate particulars of income. The finding recorded in assessment order is not conclusive for imposition of penalty but it has only persuasive value. Therefore, the profit arrived at is only a guess work which could be estimated by applying any rate of net profit based on np disclosed in earlier year`s. Thus, the facts remains that it is a case of estimate on which no penalty offer concealment of income could be levied.
Once the assessment order of the AO in the quantum proceedings was altered by the CIT(A) in a significant way, the very basis of initiation of the penalty proceedings was rendered non-existent. The AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also, the Court concurs with the CIT(A) and the ITAT that once the finding of the AO on bogus purchases was set aside, it could not be said that there was any concealment of facts or furnishing of inaccurate particulars by the Assessee that warranted the imposition of penalty under Section 271(1)(c) of the Act.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the Revenue is directed against the order of learned Commissioner of Income tax (Appeals)-IV, Surat (in short “the CIT (A)”) dated 23.03.2010 for the Assessment Year 2007-08 against quantum addition deleted by the ld.CIT(A) and appeal by the assessee is directed against the order of ld.CIT(A) -1, Surat dated 03.09.2013 for the assessment year 2007-08 against the confirmation of penalty of Rs.91,017 /- levied under section 271(1)(c) of the Act.
I.T.A.No. 2048/Ahd/2010; By the Revenue:
2. Ground No.1 as amended by the Revenue states that Ld. CIT (A) has erred in deleting the addition of Rs.2,70,40,363/- made by the AO on account of unverifiable purchases.
3. Succinct facts are that the assessee has filed return of income on 26.10.2007 declaring total income of Rs.7,52,422/-. On verification carried out under section 133(6), the AO noted that the notice issued to purchaser parties namely U M Exports, L G Diamonds, S P Enterprise and Ashi Gems was returned un-served. Further information was also received from DDIT(Inv.) Mumbai regarding suspicious transaction in the bank account of the parties from whom the assessee has purchased goods. This was based on the statement of one Shri Mahesh Mehta, one of the proprietor of above mentioned parties. The DDIT (Inv) Mumbai in his report has stated the havala transaction of providing accommodation entries. In view of this matter, the AO has disallowed 25% of such purchases from the above mentioned parties amounting to Rs.10,81,61,455/- which resulted in the addition of Rs.2,70,40,363/-.
4. The assessee has carried the matter before ld.CIT(A). However, Ld.CIT(A) after considering the submissions of the assessee observed that it is an admitted facts that the appellant has take accommodation bills from erstwhile concerns and supplied such bills by initiating bogus sales. In return, earning some commission on such transaction. It transpires that the assessee has given name, address, PAN, copy of return, copy of audit report in support of his claim of purchases. Hence, purchases cannot be termed as unverifiable as the appellant has fulfilled the primary onus cast upon him to prove the purchases. However, core issue that the seller has accepted before the authorities for providing accommodation entries bills, the genuineness of transaction is doubted. This leaves to estimate the real income. However, the Gross Profit and NP disclosed by the assessee was on higher side. Hence, CIT (A) has not disturbed the same. However, Ld. CIT (A) following his findings in the case of Dines C Jain [CAUSE-IV/110/2008-09 has directed the AO to compute the income from such accommodation entries @ 0.25%. Accordingly, the addition was restricted to Rs.2,70,403/- as against Rs.2,70,40,363/-.
5. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The learned D.R. assailed the order of CIT (A). It was contended that the tribunal by following decision in the case of Mayank Diamonds Pvt. Ltd. v. ITO [Tax Appeal No. 200 of 2003] dated 17.11.2014 [2014] 11 (TMI) 812 (Gujarat) is estimating 5% Net Profit of unverifiable purchases.
6. Per contra, the learned counsel for the assessee supported the order of Ld. CIT (A) and submitted that the ld. CIT (A) has allowed the appeal of the assessee by restricting to addition to 0.25% of unverifiable purchases by following his own order in the case of Shri Dineshkumar Chandanmal Jain for A.Y. 2006-07. The revenue has filed an appeal against the said order before tribunal. The Tribunal in the case of Shri Dineshkumar Chandanmal Jain vide order dated 05.04.2013 in I.T.A.No. 2635 & 2636/Ahd/2009 A.Y. 2005-06 & 2006-07 dated 05.04.2013 has dismissed the revenue appeal and upheld the decision of ld.CIT(A) for restriction of addition to 0.25% of unverifiable purchases. Therefore, the issue is covered in favour of the assessee. Hence, the order of Ld. CIT (A) may be confirmed. Further, the purchases and sales are verifiable and the assessee has only received commission income as the assessee has acted as commission agents and not carried out any business its own. Therefore, decision relied by the ld. Sr. D.R. is distinguishable. The learned counsel for the assessee further relied in the case of Arman Fashion Pvt. Ltd. v. ITO Ward 1(1) Surat [I.T.A.No. 2400 & 2407/Ahd/ dated 10.05.2013 of Ahmedabad tribunal, wherein net profit was estimated at 0.5% of turnover. The learned counsel for the assessee Further, submitted the Special Bench in the case of Manoj Agarwal v. DCIT [2008] 113 ITD 377 (Del) has estimated commission income at 0.50% for giving accommodation entries by holding the CIT (A) was justified in estimating net commission at 0.355 after allowing 0.15% for expenses. The learned counsel for the assessee. Therefore, it was submitted that the issue is squarely covered in favour of the assessee. The ld.Counsel further, relied on number of case laws as para his case laws Paper Book.
7. We have heard the rival submissions and perused the relevant material on record. We find that the Tribunal in the case of Shri Dineshkumar Chandanmal Jain vide order dated 05.04.2013 in I.T.A.No. 2635& 2636/Ahd/2009 A.Y. 05-06 & 06-07 dated 05.04.2013 has dismissed the revenue appeal and upheld the decision of ld.CIT(A) for restriction of addition to 0.25% of unverifiable purchases. It was observed by Tribunal that Ld.CIT(A) has allowed appeal on the ground that when income of the assessee has been directed to compute @ 0.25% on total turnover of Rs.1,08,76,86,861/-, which was worked out at Rs.27,19,217/-. The ld.CIT(A) had allowed all the expenses claimed by the appellant by relying upon the decision in case of Bharat A Master vs. ITO in I.T. Act, 1961. No.177/Ahd/2013 dated 29.02.2008 and Hon Supreme Court decision in case of Poona Electric vs. CIT 57 ITR 521 (SC). After considering the orders of the A.O. and submission of the assessee, the ld. CIT(A) has directed to compute the income on the basis of 0.25% on total turnover and no benefit of any expenditure would be allowed. The learned counsel for the assessee has relied in the case of Arman Fashion Pvt. Ltd. v. ITO Ward 1(1) Surat [I.T.A.No. 2400 & 2407/Ahd/ dated 10.05.2013 of Ahmedabad tribunal, wherein net profit was estimated at 0.5% of turnover. The learned counsel for the assessee Further, submitted the Special Bench in the case of Manoj Agarwal v. DCIT [2008] 113 ITD 377 (Del) has estimated commission income at 0.50% for giving accommodation entries by holding the CIT (A) was justified in estimating net commission at 0.355 after allowing 0.15% for expenses. Therefore, we find that the issue is covered in favour of the assessee hence, following same we are not inclined to interfere with the order of Ld. CIT (A) hence, same is upheld. This ground is dismissed.
8. Ground No. 2 relates to deletion of addition of Rs.3,95,644/- being undisclosed income from interest.
9. The AO noted that the assessee has received interest of Rs.2,22,548/- from Vitrag Metal Pvt. Ltd., Rs.1,73,096/- from Sapphire Biz Forecasting & Consulting (P) Ltd. and Rs.5,294/- from Rahul Fabrics. It was explained that interest of Rs.11,650/- was received from Rahul Fabric on which TDS of Rs.1188/- was made which has been duly accounted in the books of accounts. However, no advances were made to Vitrag Metal (P) Ltd. and Saphhire Biz Forecasting hence, there was no question of showing the interest income. However, the AO has observed that the assessee has not shown the interest, hence, he made the addition of Rs.3,95,644/- on this account.
10. Feeling dissatisfied, the assessee carried the matter in appeal before CIT (A). It was submitted that the assessee has had enquired the matter and found that advances were pertained to his sister concern made Arpit Jewels and the PAN of the assessee was wrongly mentioned in place of Arpit Jewels in TDS quarterly return. Interest from both the concerns was duly shown in the books of accounts of Arpit Jewels. The name of the company of Neol Equity Research (P) Ltd. had changed as Sapphire Biz Forecasting and Consulting (P) Ltd. and cy of fresh certificate issued by the ROC was filed. Form No.16A was obviously issued in old name and books of accounts Arpit Jewels were also reflected entries of old name. In view of these facts and circumstances, the CIT (A) held that based on relevant facts the AO was not justified in making addition based on AIR information. Since the appellant has explained with duly document hence, addition was deleted.
11. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The ld. D. R. relied on the order of the AO and could not bring anything contrary to the finding of the ld. CIT (A).
12. Au contraire, the learned counsel for the assessee relied on CIT (A).
13. We have heard the rival submissions and perused the relevant material on record. We find that the interest received was duly reflected in the books of accounts of Arpit Jewels (a sister concern of the assessee) which has been duly verified by the Ld. CIT (A). In view of this matter, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. This ground of appeal is therefore, dismissed.
14. In the result, the appeal of the Revenue is dismissed.
I.T.A.No. 2645/Ahd/2013/ by the assessee:
15. Ground No.1 to 3 relates to confirming penalty of Rs. 91,017 levied under section 271(1)(c) of the Act.
16. Brief facts are that that the assessee has filed return of income on 26.10.2007 declaring total income of Rs.7,52,422/- which was assessed at Rs.2,81,88,438/- by making addition of Rs.2,70,40,363/- on account of unverifiable purchases, disallowance of donation of Rs.2,352/- and addition of interest income of Rs.3,95,644/-. On which penalty proceedings under section 271(1)(c) were also initiated. The assessee has preferred an appeal before CIT (A) who deleted the addition of Rs.3,95,644/- and restricted the addition of Rs.2,70,40,363/- to Rs.2,70,403/- by directing the AO to compute income by applying 0.25% of unverifiable purchases. The AO thereafter, has given fresh opportunity of being heard and levied a penalty of Rs.9,11,017/- in respect of addition of Rs.2,70,403/- sustained in appeal by observing that the assessee has furnished inaccurate particulars of income to that extent.
17. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). However, CIT (A) has confirmed the levy of penalty on the ground that the assessee was not able to give satisfactory explanation in respect of bogus purchases hence, addition so made is deemed “concealment of income” under explanation 1 to section 271(1)(c) of the Act.
18. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that addition made at Rs.2,70,40,363/-was restricted to Rs.0.25% of purchases which amounts to merely an estimate of income. Further, the assessee has furnished all material fact before the AO, hence, there is no “concealment of income”. The learned counsel for the assessee contended that the AO has levied penalty on account of furnishing inaccurate particulars of income, whereas the CIT (A) has confirmed the penalty on account of deemed “concealment of income”. Whereas the assessee has not concealed any income. Therefore, in such circumstances the penalty levied and sustained by the Ld. CIT (A) is not exigible. The ld.Counsel has placed reliance on the decision in the case of Shri Ajay Loknath Lohia vs. IT0 25 (2)(1) Mumbai in I.T.A.No. 2998/Mum/2017 dated 05.10.2018 wherein it was held that mere disallowance of purchases on adhoc basis does not tantamount to willful furnishing inaccurate particulars of income within the meaning of section 271(1)(c) of Income Tax Act, 1961. Hence, we are of the considered view that the AO erred in levying penalty u/s.271(1)(c) of the Act. The ld.Counsel further placed reliance on the decision in the case of Deepak Gogri vs. ITO in I.T.A.No. 1396/Mum/2017, Pr. CIT vs. Fortune Techno Comps. Pvt. Ltd., I.T.A.No. 313/ 2016 of Hon’ble Delhi High Court and also in the case of Shervni Hospitalities Ltd., Vs. CIT 85 CCH 76 (Del. SC) in support of this contention. It was further submitted that the AO has issued notice under section 271(1)(c) read with section 274 but has not strike out the relevant para. Hence, the assessee was not sure for which default the penalty is initiated. The learned counsel for the assessee has argued that the learned CIT(A) as wrongly considered that it is not a case of estimation of income. The addition of Rs.2.70 crores made by the AO was reduced to Rs.70,403/-by applying the net profit ratio of 0.25% of unverifiable purchases. The penalty cannot be levied on estimated addition as decided in many judicial pronouncements like CIT v. Lalubhai Jogibhai Patel 261 ITR 216 (Guj), Hari Gopal Singh v. CIT 258 ITR 85 (P&H) , CIT v. Valmikibhai H Patel 280 ITR 487 (Guj).
19. Per contra, D.R. supported the order of CIT (A).
20. We have heard the rival submissions and perused the relevant material on record. Looking to the facts and circumstances of the case, we find that the AO has made addition on account of unverifiable purchases at Rs.2,70,40,363/- being entire purchases which were reduced to 0.25% of total disputed purchases. Thus, the addition was estimated @ 0.25% of transaction amount, which cannot therefore, be termed as conclusive proof of concealment of income or furnishing inaccurate particulars of income. The finding recorded in assessment order is not conclusive for imposition of penalty but it has only persuasive value. Therefore, the profit arrived at is only a guess work which could be estimated by applying any rate of net profit based on np disclosed in earlier year`s. Thus, the facts remains that it is a case of estimate on which no penalty offer concealment of income could be levied. We find that in the assessment order, the AO has made and of total amounts and transaction as reflected however, CIT (A) has estimated income by applying the formula of % of transactions. The ld.Counsel has placed reliance on the decision in the case of Shri Ajay Loknath Lohia vs. IT0 25 (2)(1) Mumbai in I.T.A.No. 2998/Mum/2017 dated 05.10.2018 wherein it was held that mere disallowance of purchases on adhoc basis does not tantamount to wilfull furnishing inaccurate particulars of income within the meaning of section 271(1)(c) of Income Tax Act, 1961. Hence, we are of the considered view that the AO erred in levying penalty u/s.271(1)(c) of the Act. The ld.Counsel further placed reliance on the decision in the case of Deepak Gogri vs. ITO in I.T.A.No. 1396/Mum/2017, Pr. CIT vs. Fortune Techno Comps. Pvt. Ltd., I.T.A.No. 313/ 2016 of Hon’ble Delhi High Court in which it was observed that “Once the assessment order of the AO in the quantum proceedings was altered by the CIT(A) in a significant way, the very basis of initiation of the penalty proceedings was rendered non-existent. The AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also, the Court concurs with the CIT(A) and the ITAT that once the finding of the AO on bogus purchases was set aside, it could not be said that there was any concealment of facts or furnishing of inaccurate particulars by the Assessee that warranted the imposition of penalty under Section 271(1)(c) of the Act. The judgment of Hon’ble Delhi High Court in the case of Shervani Hospitalities Ltd., Vs. CIT 85 CCH 76 (Del. SC) supports this case. We find that the addition was made and income was estimated. Therefore, we are of the view that the penalty cannot be levied. Accordingly, penalty levied at Rs.91,017/- levied and confirmed by the CIT(A) is directed to be deleted.
21. In the result, the appeal of the assessee stands allowed.
22. To sum up, appeal of the Revenue in I.T.A.No. 2048/Ahd/2010 is dismissed and appeal of assessee in I.T.A.No. 2645/Ahd/2013 is allowed.
23. The order pronounced in the open Court on 04.10.2019.
