Introduction: The case of “Bhawarlal Tarachandji Jain vs ITO” involves the determination of income and the subsequent imposition of a penalty by the Income Tax Appellate Tribunal (ITAT) Mumbai. The penalty was levied under section 271(1)(c) of the Income Tax Act, 1961, for alleged concealment of income based on estimated additions. This article provides a detailed analysis of the case, including the legal arguments presented and the conclusion reached by ITAT Mumbai.
1. Background of the Case: The assessee filed appeals against different orders of the Commissioner of Income Tax (Appeals) [CIT(A)] for assessment years 2010-11 and 2011-12. These appeals revolved around the common issue of the imposition of a penalty under section 271(1)(c) of the Income Tax Act for concealing income. ITAT Mumbai decided to adjudicate both appeals together, with one appeal serving as the lead case.
2. Grounds of Appeal: The grounds of appeal presented by the assessee included challenges to the penalty levied under section 271(1)(c) and the disallowance of certain purchases treated as made from hawala dealers. The key arguments raised by the assessee were as follows:
3. ITAT Mumbai’s Decision: ITAT Mumbai reviewed the facts and found that the assessing officer had made additions to the assessee’s income based on estimated profits. The assessing officer’s actions were prompted by information received from the sales tax department, which had treated some suppliers as hawala dealers.
The ITAT considered the supporting documents submitted by the assessee, such as delivery challans, purchase invoices, quantity-wise statements, sale invoices, and bank statements, which demonstrated the genuineness of the transactions. The assessee also provided evidence of corresponding sales against the purchases made.
ITAT Mumbai referenced a precedent from the Bombay High Court, which stated that determining income based on estimates alone is not sufficient to establish income concealment.
4. Conclusion: In conclusion, ITAT Mumbai ruled in favor of the assessee, stating that the penalty imposed for additions made on the basis of estimated profits was not justified. The tribunal emphasized that the mere use of estimates does not prove income concealment. Therefore, the penalty under section 271(1)(c) was deemed unwarranted.
This article has provided a comprehensive analysis of the case “Bhawarlal Tarachandji Jain vs ITO” heard by ITAT Mumbai. The decision underscores the importance of not imposing penalties solely on estimated additions and the need for concrete evidence of income concealment.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. Both these appeals filed by the assessee are directed against the different orders of ld. CIT(A) NFAC, for assessment years 2010-11 & 201 1-12. Since both these appeals are based on common issue of levying penalty u/s 27 1( 1)(c) for concealment of particulars of income on similar facts, therefore, for the sake of convenience both these appeals are adjudicated together by taking ITA No. 1729/Mum/2023 as a lead case and its finding will be applied mutatis mutandis to the other appeal. All the ground no. 1 to 8 are interconnected, therefore all these ground of appeal are adjudicated together as follows.
ITA No. 1729/Mum/2023
“1. The Order passed by the Ld. CIT(A) is opposed to law and contrary to the facts and circumstances of the case and is therefore unsustainable
2. On the facts and in the circumstances of the case and in law, the learned A.O. is not justified in levying penalty of Rs. 73,950/- u/s 271(c) on account of disallowance of bogus purchases of Rs.664, 789/- being 5% of total purchases of Rs. 53,18,312/- (which was reduced by CIT(A) to 8%) from different suppliers treated as purchases from Hawala Dealer, while there was no such Hawala Purchases
3. 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 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
4. 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. San grur 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
5. On the facts and in the circumstances of the case and in law, the learned AO failed to appreciate that there is neither concealment of particulars of income nor furnishing of inaccurate particulars of income. Therefore penalty imposed under section 271(1) (c) is bad in law.
6. The Ld. CIT(A) mentioned that the appellant was involved in hawala transaction and just produced accommodation bills without actual delivery is not valid in case of the appellant.
7. The Ld. CIT(A) confirmed the adhoc disallowance to the extent of 8% of total purchases which is not justifiable as there is no basis for such calculation
8. The AO erred in ignoring the facts that addition is made only on estimated basis on account of difference in gross margins earned from sale against purchases from party alleged to be non-genuine An addition which is made purely on an estimate basis, it cannot be said there is concealment of income.
9. The appellant seeks your leave to add, alter, amend or delete any of the grounds urged, at the time of hearing.”
2. Fact in brief is that vide penalty order u/s 27 1( 1)(c) of the Act 1961 dated 30.03.2019 the assessing officer has levied penalty of Rs.73,950/- u/s 271(4)(c) on addition of Rs.664,789/- being 12.5% of total purchases of Rs.53, 18,312/- (which was reduced by ld. CIT(A) to 8%) from different suppliers treating as purchases made from hawala parties.
3. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The CIT(A) has sustained the penalty levied by the AO.
4. During the course of appellate proceedings before us the ld. Counsel submitted that payment to suppliers has been made by the account payee cheques and the purchased goods has been sold to different customers which tally with the quantity of detail maintained. The ld. Counsel further submitted that assesse has made genuine purchases from suppliers who has not filed MVAT return on the basis of which they have been treated by the sales tax department as hawala dealers. The ld. Counsel further contended that just on the basis of information obtained from sales tax department AO made the estimated addition without proving that assesse has made any ingenuine purchases. The ld. Counsel also submitted that penalty levied under above circumstances on estimated basis is not justified.
On the other hand, the ld. D.R supported the order of lower authorities.
5. Heard both the sides and perused the material on record. The assessing officer vide order u/s 143(3) had made addition of Rs.664,789/- being 12% of total purchases of Rs.53, 18,312/- made from different suppliers by treating as purchases made from hawala dealer on the basis of information received from the sale tax department. The ld. CIT(A) has reduced addition to 8% of such purchases made from different suppliers. During the course of assessment proceeding the assessee has submitted the relevant supporting details i.e delivery challan, purchase invoices quantity wise statement, corresponding sale invoices and bank statement to prove the genuineness of the transactions. The assesse has also submitted the relevant evidences of making corresponding sale against the purchases made by the assessee. However, the assessing officer on estimated basis has made the impugned addition on the ground that assessee has made purchase from other supplier at lower price without contrary disproving the relevant supporting evidences furnished by the assesse. In the light of the above facts we consider that assessing officer has determined the addition on estimated basis which is not sufficient to establish that assessee has actually concealed the particulars of income. We have considered the decision of Hon’ble Bombay High Court in the case of CIT Vs. Yusuf Abdullah Patel (1994) 15 taxman.com 614 wherein held determination of income of assesse on certain estimate was not sufficient to support that assessee had concealed his income. In view of the above facts and finding we consider that in the case of the assessee the impugned penalty merely levied on addition made on the basis of estimated profit is not justified, therefore, we are not inclined with the decision of ld. CIT(A), accordingly, the ground no. 1 to 8 of the appeal of the assessee are allowed.
ITA No. 1730/Mum/2023
6. Since the facts and issue involved in these ground of appeal no. 1 to 8 are similar to the ITA No. 1729/Mum/2023 as adjudicated supra in ground no. 1 to 8 therefore applying the finding of ITA No. 1729/Mum/2023 as mutatis mutandis all the ground no. 1 to 8 of the appeal of the assesse are also allowed.
7. In the result, both the appeals of the assesse are allowed.
Order pronounced in the open court on 17.08.2023