Ramprakash Vijayvergia Vs ITO (ITAT Surat)
Summary: The Surat Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal against the order of the National Faceless Appeal Centre, Delhi, which had confirmed a penalty of Rs. 18,42,620 under Section 271(1)(c) of the Income-tax Act, 1961 for Assessment Year 2012-13. The penalty had been levied by the Assessing Officer vide order dated 09/03/2018.
The assessee, engaged in the business of trading, manufacturing, importing and exporting of diamonds, had filed its return for AY 2012-13 on 14/08/2012 declaring total income of Rs. 3,43,200. During assessment proceedings, the Assessing Officer referred to a search conducted by the Investigation Wing, Mumbai, on the Bhanwarlal Jain Group on 03/10/2013. According to the Assessing Officer, evidence relating to benami concerns managed by the group and accommodation entries had been found, and the assessee was one of the beneficiaries.
The Assessing Officer treated purchases of Rs. 4.98 crores shown from Ankita Exports and Megha Gems as ingenuine/bogus purchases and made an addition. In quantum proceedings, the CIT(A), vide order dated 17/02/2017, restricted the disallowance to Rs. 62,34,360, representing 12.5% of the disputed purchases. Following the quantum order, the Assessing Officer issued a show-cause notice dated 30/01/2018 and, after recording that the assessee neither attended nor filed a reply, levied penalty at 100% of the tax sought to be evaded on the addition sustained by the CIT(A), computing the penalty at Rs. 18,42,620.
Before the Tribunal, the assessee contended that neither concealment of income nor furnishing of inaccurate particulars had been established. It was submitted that the purchases had initially been disallowed in full but that the quantum addition had subsequently been restricted to 12.5% by the CIT(A) and, on further appeal before the Tribunal, to 5% of gross profit. The assessee therefore contended that the ultimate addition was made on an estimated/ad hoc basis and that penalty under Section 271(1)(c) was not leviable on such an addition.
The Revenue supported the orders of the lower authorities and submitted that the penalty to the extent of the bogus purchases confirmed by the CIT(A) should be upheld.
The Tribunal considered the rival submissions and the record. It noted that the Assessing Officer had initially made an addition of Rs. 4.98 crores based on information from the Investigation Wing regarding purchases from Ankita Exports and Megha Gems. The CIT(A) subsequently restricted the quantum addition to 12.5%, while the Tribunal noted that on further appeal the addition was ultimately restricted to 5% of gross profit. The Tribunal therefore recorded that the ultimate addition had been restricted on an ad hoc basis.
The Tribunal held that it was a settled position that penalty under Section 271(1)(c) was not to be levied on an addition made on an ad hoc basis. It referred to the Gujarat High Court decisions in CIT Vs Subhash 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).
The Tribunal also considered the decisions relied upon by the CIT(A), namely Union of India Vs Dharamendra Textile Processors, (2008) 166 Taxman 65 (SC), K.P. Madhusudan Vs CIT, 251 ITR 99 (SC), and CIT Vs Zoom Communications Pvt. Ltd., 327 ITR 51. The Tribunal found that the facts in those cases were at variance and that the decisions were not applicable to the facts before it.
Accordingly, the Tribunal found no justification for the levy of penalty under Section 271(1)(c) and directed the Assessing Officer to delete the entire penalty of Rs. 18,42,620. The grounds raised by the assessee were allowed and the appeal was allowed.
Cases Discussed
- CIT Vs Subhash Trading Co., (1996) 86 Taxman 30 (Guj) — referred to as a Gujarat High Court decision supporting the proposition that penalty under Section 271(1)(c) is not leviable on an addition made on an ad hoc basis.
- Navjivan Oil Mills Vs CIT, (2002) 124 Taxman 392 (Guj) — referred to as a Gujarat High Court decision concerning penalty on an estimated addition.
- CIT Vs Valimkbhai H Patel, (2006) 280 ITR 487 (Guj) — referred to in support of the proposition that penalty is not justified where the addition is made on an ad hoc basis.
- ITO Vs Bombaywala Readymade Stores, (2015) 55 taxmann.com 258 (Guj) — referred to as another Gujarat High Court authority concerning penalty on an ad hoc addition.
- Union of India Vs Dharamendra Textile Processors, (2008) 166 Taxman 65 (SC) — relied upon by the CIT(A) while confirming the penalty; the Tribunal found the facts of the cited case to be at variance with the present case.
- K.P. Madhusudan Vs CIT, 251 ITR 99 (SC) — relied upon by the CIT(A) while confirming the penalty; the Tribunal found the facts of the cited cases to be at variance with the present case.
- CIT Vs Zoom Communications Pvt. Ltd., 327 ITR 51 — relied upon by the CIT(A) while confirming the penalty; the Tribunal found the facts of the cited cases to be at variance with the present case.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT SURAT
1. This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 22/12/2023 in confirming the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 (in short, the Act) of Rs. 18,42,620/- in order dated 09/03/2018 for the Assessment Year (AY) 2012-13. Following grounds of appeal have been raised by the assessee.
“1. The ld. A.O., Ward 3(1)(5) has erred in passing penalty order dated 09/03/2018 on facts it is prayed that the addition made cannot be a basis for levying penalty under Section 271(1)(c) and therefore on merits there is no justification for levying penalty and same may please be cancelled.
2. It is further prayed that even on legal aspect, the penalty proceedings including SCN given by AO are itself bad in law and void and therefore, the order should be quashed.
3. It is prayed that the penalty proceedings are distinct and separate proceedings and therefore, same cannot be levying mechanically and therefore, it is prayed that the penalty levied may please be cancelled.”
2. Brief facts of the case are that the assessee is engaged in the business of trading, manufacturing, importing and exporting of diamonds. The assessee filed return of income for A.Y. 2012-13 on 14/08/2012 declaring total income of Rs. 3,43,200/-. The case was selected for scrutiny. The Assessing Officer during the assessment, noted that a search action was carried out on Bhanwarlal Jain Group by the Investigation Wing, Mumbai on 03/10/2013. In the said search action, various evidences of benami concerns managed by Bhanwarlal Jain and group which was indulging in providing accommodation entry, was found. The Assessing Officer further noted that the assessee was one of the beneficiaries of such accommodation entry. The Assessing Officer after giving show cause notice, referring the modus operandi of entry provider, treated the purchases of Rs. 4.98 crores shown from Ankita Exports and Megha Gems as ingenuine purchases/bogus purchases and made addition thereof. On further appeal in quantum assessment, the disallowances of purchases shown from Ankita Exports and Megha Gems was restricted to Rs. 62,34,360/- vide order dated 17/02/2017 in CIT Appeal No. CAS/3/26/2015-16. The ld CIT(A) restricted disallowance to 12.5% of the disputed purchases. The Assessing Officer on receipt of order from ld. CIT(A) in quantum assessment, issued a show cause notice dated 30/01/2018 asking the assessee to file reply on or before 13/02/2018. The Assessing Officer on recording that neither the assessee attended nor filed any reply, levied penalty @ 100% of tax sought to be evaded on the addition restricted by the ld. CIT(A) qua the alleged bogus purchases. The Assessing Officer worked out the penalty of Rs. 18,42,620/-.
3. Aggrieved by the penalty levied under Section 271(1)(c) of the Act, the assessee filed appeal before the ld. CIT(A). Before ld CIT(A) the assessee filed detailed statement of facts. The ld. CIT(A) after considering the penalty order and the facts submitted by assessee, confirmed the penalty by referring the decisions of Hon’ble Apex Court in the case of Union of India Vs Dharmendra Textile Processors (2008) 166 Taxman 65 (SC), K.P. Madhusudan Vs CIT 251 ITR 99 (SC) and the decision of Hon’ble Delhi High Court in CIT Vs Zoom Communications Pvt. Ltd. 327 ITR 51. Further aggrieved, the assessee has filed present appeal before this Tribunal.
4. We have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The ld. AR of the assessee submits that the assessee has neither concealed the income nor furnished inaccurate particulars thereof. The Assessing Officer merely made disallowances of purchases on the basis of allegation of bogus purchases which were based on the information about the search carried out on Bhanwarlal Jain Group in Mumbai. The Assessing Officer made 100% of disallowance of purchases shown from Ankita Exports and Megha Gems. However, on appeal before the ld. CIT(A), the addition was restricted to Rs. 62,34,360/- which is 12.5% of the disputed/bogus purchases. The ld. AR of the assessee submits that on further appeal by revenue before the Tribunal, the addition was restricted to 5% of Gross profit. The ld. AR of the assessee submits that it is settled position under law that no penalty under Section 271(1)(c) of the Act is leviable on the addition made on estimated/ ad hoc basis. The entire penalty is to be deleted.
5. On the other hand, the ld. Sr. DR for the revenue supported the orders of lower authorities. The ld. Sr. DR for the revenue submits that the penalty to the extent of bogus purchases confirmed by the ld. CIT(A) may be upheld.
6. We have considered the submissions of both the parties and perused the record carefully. There is no dispute that initially, the Assessing Officer made disallowances / addition of Rs. 4.98 crores on the basis of information of Investigation Wing, Mumbai that the assessee is one of the beneficiaries of purchases shown from Ankita Exports and Megha Gems which are managed by Bhanwarlal Jain Group. There is no further dispute that on appeal before the ld. CIT(A), the quantum addition was restricted to 12.5%. We find that on further appeal before the Tribunal, the addition instead of restricting to the bogus purchases, the gross profit of assessee was restricted to 5%. Thus, admittedly, the ultimate addition was restricted on ad hoc basis. It is settled position under law that no penalty on the addition made on ad hoc basis, is to be levied. Similar view has been taken by Hon’ble Jurisdictional High Court in CIT Vs Subhash 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 in ITO Vs Bombaywala Readymade Stores (2015) 55 taxmann.com 258 (Guj). So far as reliance on various case laws relied by ld CIT(A) in his order, we find that the facts in all such case laws are at variance and the decisions of all such cases are not at all applicable as far as facts of the present case is concerned. Thus, we do not find any justification in levying such penalty under section 271(1)(c).
7. Thus, we direct the Assessing Officer to delete the entire penalty levied vide order dated 09/03/2018. In the result, the grounds of appeal raised by the assessee are allowed.
8. In the result, this appeal of assessee is allowed.
Order announced in open court on 16th April, 2024.
