TMI Blog2015 (1) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income tax (Appeals), consequently, the order of the First Appellate Authority is upheld. - Decided gainst Revenue. Penalty with respect to alleged bogus purchases upheld by CIT - Held that:- There is a contradiction in the conclusion arrived at in the assessment order with respect to purchases. The AO made the addition by holding that since the corresponding sales have been made, therefore, the assessee purchased the goods not from M/s Triton Infotech Pvt. Ltd. but from the grey market to avoid local taxes such as sales tax, VAT, etc. Thus, he made disallowance of 20% of the total purchases which resulted into addition of ₹ 55,72,000/-. The ld. Commissioner of Income tax (Appeals) reduced the addition to ₹ 11,20,000/-. However, during search & seizure operation, as per the Revenue, documents were found and seized and it was concluded that the assessee company made purchases from M/s Triton Infotech Pvt. Ltd. The statement of Shri K.K. Gupta was recorded, who tendered that no actual sales were made to the assessee and only accommodation bills were received. What it may be the fact remains that the ld. Assessing Officer relied upon the statement of Shri K.K. Gupt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, the ld. Counsel for the assessee, Shri Anuj Kisnadwala, defended the conclusion drawn by the ld. Commissioner of Income tax (Appeals), wherein the penalty was deleted (in six appeals) and challenged sustenance of penalty in ITA No.5243/Mum/2012. The crux of argument is that the penalty was imposed merely on the basis of statement recorded from a third party, which as per the assessee is quite unjustified. It was also pleaded that no incriminating material was found from the premises of the assessee and simply to buy peace with the Department and to avoid litigation/confrontation with the department, the amounts were surrendered by further submitting that the surrender was made voluntary for all the Assessment Years, thus no penalty is imposable as there was neither concealment of income nor furnishing of inaccurate particulars. Plea was also raised that when income is estimated, no penalty is leviable. The ld. Counsel placed reliance upon following judicial pronouncements: i. CIT vs Suresh Chandra Mittal (2001) (251 ITR 9)(SC) ii. Sir Shadilal Sugar General Mills Ltd. Ors. Vs CIT (168 ITR 705)(SC). iii. CIT vs S.D.V. Chandru (266 ITR 175) (Mad) iv. Gebilal Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No. Nature of undisclosed income Assessment Years Amount(Rs.) 1. Gross profit @1% of sales 2002-03 77,09,505/- Disallowance of Interest 2002-03 6,43,738/- Withdrawal of claim u/s35D 2002-03 2,09,430/- 2. Gross profit @1% of sales 2003-04 46,29,878/- Disallowance of Interest 2003-04 22,33,128/- Withdrawal of claim u/s35D 2003-04 2,09,430/- 3. Gross profit @1% of sales 2004-05 57,18,060/- Disallowance of Interest 2004-05 8,30,821/- Disallowance u/s 14A 2004-05 4,000/- Withdrawal of claim u/s35D 2004-05 2,09,430/- 4. Gross p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is leviable on estimation. f) Apart from this, the fact of the addition and the amount is question were not the income of the assessee. The addition was made on account of explanation given by the assessee having not been accepted on account of estimation. Therefore, the penalty is not leviable on such addition. g) Reliance is placed on the decision of CIT Vs Dhillon Rice Mills (2002) 256 ITR 447 (P H). h) The disallowance has been made solely on the basis of the statement of Shri Krishna Kumar Gupta, Director of M/s Triton intotecn Pvt. Lid., who was not allowed to be cross examined. This statement of Shri Krishna Kumar Gupta has been accepted as gospel truth without an}' corroborative material to support the said claim of Shri Krishna Kumar Gupta, Rather the AD has assumed that sales made by the assessee were genuine as all the parties have confirmed the purchase made from assessee company. The payment was made by cheque to Triton Infotech Pvt. Ltd. And payment was received by cheque from sales parties which proves the genuineness of the purchases made by the assessee company from MIs Triton Infotech Pvt. Ltd. i) The assessee company was not given any opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al profit or income. But to co-operate with the department and to buy peace of mind as well as to avoid litigation, with the impression that assessee will get immunity from penalty proceedings under provisions of the I. T. Act, 1961. The department has also estimated the additional profit @ 1% declared by the assessee and the estimated income is not subject to penalty provisions as. held by the following decisions:- 1) Purnima Devi Gupta (2004) 83 TTJ (Jodh) 2) CIT Vs Dhillon Rice Mills (2002) 256 ITR 447 (P H) vii. The assessee is entitled to immunity from penalty U/S 271(1)(c) in view of sub-clause 2 of Explanation 5 to section 271(1){c) of the I. T. Act, 1961. viii. In this connection the assessee company is relying on the following decision:- a) CIT Vs Suresh Chandra Mittal 251 ITR 9 (SC) b) Sir Shadilal Sugar General Mills Ltd. and others Vs CIT Delhi-168 ITR 705 (SC) c) CIT Vs. S.D. V. Chandru 260 ITR 175 (Mad.) d) Gebilal Kanhaialal (HUF) Vs ACIT-270 ITR 523 (Guj.) e) CIT Vs Chhabre Emorium -264 ITR 249 (Del.) Disallowance u/s 14A of ₹ 66,000/- The assessee begs to submit that it had voluntarily made a disallowance of ₹ 2,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the statement of Shri Krishna Kumar Gupta, Director of M/s. Triton Infotech Pvt. Ltd. was recorded in which he has stated that no actual sales have been made by M/s Triton Infotech Pvt. Ltd. to the assessee company and only accommodation bills were issued. During the assessment proceedings, the AO has asked the assessee to submit the details with documentary evidences. After considering the details and evidences submitted by the appellant, the AO has held that the assessee had made sales to the parties against these purchases who have confirmed the transaction. Therefore, the AO as concluded that the assessee has' made these purchases from the grey market to avoid local taxes, i.e. sales-tax, VAT etc. to reduce the .cost of concealed income to this extent, Therefore, the AO has made a disallowance of 20% of these purchases and made addition of ₹ 55,72,000/- after giving credit of ₹ 2,80,000/- declared during the course of search and initiated penalty proceedings. During the penalty proceedings, the AO has again given show cause notice to the assessee to explain why penalty may not be levied. After considering the reply of the appellant, the penalty was levied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessee by applying net profit rate of 33 per cent. The action of the AO was confirmed by the CIT(A), however, the Tribunal estimated the gross receipts at ₹ 15,00,000/- and directed the AO to apply a net profit rate of 20 per cent subject to depreciation and interest to third parties. From the above facts it would be clear that there was an estimate at the level of the AO as well as at the level of Tribunal in respect of receipts as well as net profit rate. The above facts clearly show that the income of the assessee was estimated and nothing has been brought on record by the AO that the assessee concealed any particulars of income or furnished inaccurate particulars of income. It cannot be said that the addition made in the hands of the assessee was on account of any concealment by the assessee. Therefore, the provisions of Section 271(1)(c) were not applicable to the facts of the present case. It cannot be said that in the case of assessee there were any fraud or gross or willful neglect to return the correct income. In that view of the matter also the penalty was not leviable under section 271(1)(c). No penalty under section 271(1)(c) was leviable in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the CIT(A)'s order sustaining this addition of ₹ 11,20,000/-. The appeal is pending before ITAT'. 6.2 I have considered the submissions of the appellant and facts of the case. It is noticed that during the course of search, documents were found and seized. It was noticed that the assessee has made purchases from M/s. Triton Infotech Pvt. Ltd. The statement of Shri Krishna Kumar Gupta, Director of this company was recorded who has stated that no actual sales were made and only accommodation bills were issued to the assessee company. In the assessment proceedings, the AO has held that since corresponding sales have been made, therefore, the assessee has purchased not from M/s. Triton Infotech Pvt. Ltd. but made purchases from the grey market to avoid local taxes such as sales-tax, VAT etc. Therefore, the AO has made disallowance of 20% of the total purchases and made addition of ₹ 55,72,000/-. In appeal, the CIT(A) has restricted this addition of ₹ 11,20,000/- on the basis of actual rate of taxes such as sales-tax and VAT and deleted the balance addition of Rs,44,52,000/-. During the penalty proceedings, the AO has levied penalty on the amount of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132(4). During the assessment proceedings, the AO has accepted this additional income declared in the return in response to notice u/s 153A but the penalty proceedings u/s. 271(1)(c) were initiated. During the penalty proceedings, the AO has again given a show cause notice to the assessee to explain why penalty may not be levied. After considering the reply of the appellant, the penalty was levied. 7.1. Before me, the appellant submitted as Under: The appellant begs to submit that the AO has not recorded any satisfaction about the concealment of income or furnishing of inaccurate particulars of income in respect of withdrawal of foreign travelling expenses of ₹ 3,00,000/-, which was surrendered by the appellant in the course of search and seizure operation and later disclosed in the return of income furnished in response to notice u/s 153A of I. T. Act. In the assessment order the AO had only recorded satisfaction for initiation of penalty proceedings u/s 271(1)(c) in respect of further disallowance of ₹ 38,72,000/- made by him on account of bogus purchase, which was deleted by CIT(A). a)' The above comments of the AO regarding the disclosed income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p (different assessee). It was noticed that the assessee made purchases from M/s Triton Infotech Pvt. Ltd. and the statement of its Director, Shri K.K. Gupta, was recorded, wherein, it was stated that no actual sales were made and only accommodation bills were issued to the assessee company. Whereas, in the assessment proceedings, the Assessing Officer held that since corresponding sales were made, therefore, the assessee did not make purchases from M/s Trinton Infotech Pvt. Ltd. rather from grey market to avoid local taxes such as sales tax, VAT, etc, consequently, he made disallowances of 20% of the total purchases resulting into addition of ₹ 55,72,000/-, which was restricted to ₹ 11,20,000/- by the ld. Commissioner of Income tax (Appeals), on the basis of actual rate of taxes and deleted the remaining addition of ₹ 44,52,000/-. It seems that the Assessing Officer imposed penalty on the basis of the statement of Shri K.K.Gupta who tendered that he merely issue accommodation bills and no sales were actually affected. Thus, there are conflicting facts/presumption. The Assessing Officer made the disallowance on estimated basis as is evident that the addition was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Punjab Haryana High Court in CIT vs Ravail Singh Com. 254 ITR 191 (P H), wherein, additions were made on estimate basis and there was no concrete evidence of concealment of income, it was held that penalty u/s 271(1)(c) is not leviable. While coming to this conclusion, the Hon'ble Court considered the full Bench decision from the same High Court in Vishwakarma Industries vs CIT (1982) 135 ITR 652 (P H)(FB). Ultimately, the estimated income was computed by the Assessing Officer in the assessment order. It is well settled law that the addition made on the basis of estimate and not on concrete evidence of concealment of income or furnishing inaccurate particulars, therefore, no penalty is leviable. We rely upon the decisions of the Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Dhillon Rice Mills (2002) 256 ITR 447, CIT Vs. Ravail Singh and Co. (2002) 254 ITR 191 and Harigopal Singh Vs.CIT (2002) 258 ITR 85. Hon'ble Supreme Court in the case of M/s Rajasthan Spinning and Weaving Mills 2009-TIOL- 63 held that for every default penalty is not automatic. Hon'ble Madras High Court in Commissioner Of Income Tax vs K.R. Chinni Krishna Chetty (246 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. It has been observed in the assessment order that during the course of search and seizure operation the statement of Shri Krishna Kumar Gupta, Director of M/s. Triton Infotech Pvt. Ltd., was recorded in which he stated that actual sales has not been made to the assessee company by M/s. Triton Infotech Pvt. Ltd., but only they had issued accommodation bills. However, it was submitted by the appellant in course of assessment proceedings that payments were made to the said party through banking channels by cheque. It was further submitted that AO himself has confirmed that sales made by the assessee company were genuine as all the parties have confirmed the purchases from the assessee company. It was concluded by AO that since the sales were confirmed, the purchases have been made from grey market, thereby avoiding payment of sales tax and VAT, etc. As the grey market purchase price would be lower than' the billed purchase consideration, 20% of purchases of ₹ 2,78,60,000/- was disallowed on estimate basis which led to the addition of ₹ 52,92,001/- after allowing telescoping of the 1 % of addition surrendered on total sales (Rs. 55,72,000/- minus ₹ 2,80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or concealed particulars of its income. d) In the case of assessee the addition is estimated by AO at ₹ 55,72,000/-. The Hon'ble CIT(A) has reduced the estimated addition to ₹ 11,20,0001- by giving substantial relief of ₹ 44,52,000/-. Applying the ratio of decision of the ITAT to the facts of the assessee, no penalty is leviable on estimation. e) Apart from this, the facts of the addition and the amount in question were not the income of the appellant. The addition was made on account of explanation given by the appellant having not been accepted on account of estimation. Therefore, the penalty is not leviable on such addition. f) Reliance is placed on the decision of CIT Vs Dhillon Rice Mills (2002) 256 ITR 447 (P H) wherein it has been held that the AO simply estimated the yield of super phak as well as of chillka and estimated the price of chillka and made the addition but that estimation will not lead to penalty. g) This disallowance has been made solely on the basis of the statement of Shri Krishna Kumar Gupta, Director of M/s. Triton Infotech Pvt. Ltd., who was not allowed to be cross examined. This statement of Shri Krishna Kumar Gupta ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, the AO has levied penalty on the amount of ₹ 11,20,000/- by treating it as concealed income and submission of inaccurate particulars of income. Now the question arises whether it was a case of concealment of income. To answer this question, it is clear from the facts of the present case that during the course of search and seizure operation, documents were found and seized and it was noticed that the assessee company had made purchases from M/s. Triton Infotech Pvt. Ltd. Thestatement of Shri Krishna Kumar Gupta, Director of this company was recorded who has stated that no actual sales were made to the assessee company and only accommodation bills were issued. In the assessment order, the AO has held that the assessee has made purchases not from M/s. Triton Infotech Pvt. Ltd. but from the grey market to avoid payment of local taxes and to this extent the assessee had concealed income. The AO had made disallowance @ 20% but the CIT(A) has reduced this amount to ₹ 11,20,000/- on the basis of actual rate of local taxes. Although, the AO has made disallowance on estimated basis but the CIT(A) has restricted the addition on the basis of actual rate of taxes. Therefore, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by holding that since the corresponding sales have been made, therefore, the assessee purchased the goods not from M/s Triton Infotech Pvt. Ltd. but from the grey market to avoid local taxes such as sales tax, VAT, etc. Thus, he made disallowance of 20% of the total purchases which resulted into addition of ₹ 55,72,000/-. The ld. Commissioner of Income tax (Appeals) reduced the addition to ₹ 11,20,000/-. However, during search seizure operation, as per the Revenue, documents were found and seized and it was concluded that the assessee company made purchases from M/s Triton Infotech Pvt. Ltd. The statement of Shri K.K. Gupta was recorded, who tendered that no actual sales were made to the assessee and only accommodation bills were received. What it may be the fact remains that the ld. Assessing Officer relied upon the statement of Shri K.K. Gupta and even no opportunity was provided to the assessee to cross examine him, which is against the principle of natural justice. It seems the whole addition is either based on estimation or on the basis of statement of Shri K.K. Gupta, thus in our view, at least penalty is not imposable. It may be a good case for quantum additio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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