2022 (4) TMI 153 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - We are of the considered view that keeping in view the gross profit earned by the assessee in preceding as well as succeeding years as discussed in the preceding paras addition in this case @ 12.5% of the gross bogus purchases would meet the ends of justice. Since no independent enquiry has been carried out by the AO rather relied upon the information supplied by the Sales Tax Department as to the alleged bogus purchases and at the same time AO has not disputed the sales recorded by the assessee the gross profit rate on the normally accepted purchases can be fixed to deal with such bogus purchases. So the total addition on the basis of 12.5% minus already declared by the assessee in the year under assessment shall meet the ends of the justice. The contentions raised by the Ld. D.R. for the Revenue that 100% bogus purchases made by the assessee be added to his total income is not sustainable in the eyes of law. So appeal filed by the assessee is partly allowed and appeal filed by the Revenue is dismissed. Penalty levied u/s 271(1)(c) - When entire addition in this case is on estimation basis and at no point of time Revenue Authorities have reached the specific conclusion that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income rather made the addition on the basis of information received from Sales Tax Department without conducting any independent enquiry as to the alleged bogus purchases, the penalty levied by the AO and confirmed by the Ld. CIT(A) is not sustainable in the eyes of law.

Issues Involved:
1. Validity of assessment without providing relied-upon documents.
2. Sustaining addition of 25% of alleged bogus purchases.
3. Issuance of penalty show cause notice in standard proforma.
4. Levy of penalty under section 271(1)(c) based on estimated profit addition.
5. Deletion of penalty by CIT(A) despite alleged bogus purchases.
6. Onus to justify the claim of expenses and genuineness of purchases.

Detailed Analysis:

1. Validity of Assessment Without Providing Relied-Upon Documents:
The assessee contended that the assessment was completed without providing a copy of the documents relied upon by the Assessing Officer (AO), violating the principles laid down by the Honorable Supreme Court in Kishanchand Chellaram vs. CIT and Andaman Timber Industries vs. Commissioner of Central Excise. The Tribunal noted that the AO initiated the reopening under section 147 based on information from the Sales Tax Department alleging bogus purchases. However, no independent enquiry was conducted by the AO to verify the genuineness of these purchases.

2. Sustaining Addition of 25% of Alleged Bogus Purchases:
The CIT(A) restricted the addition to 25% of the alleged bogus purchases, amounting to ?9,65,425 out of ?38,61,698. The Tribunal observed that the AO added the entire amount of alleged bogus bills without any investigation. The Tribunal, relying on the consistent view of the co-ordinate Benches and the decision of the Hon'ble Bombay High Court in Principal Commissioner of Income Tax vs. M/s. Mohommad Haji Adam & Co., held that an addition of 12.5% of the gross bogus purchases would meet the ends of justice. Consequently, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal.

3. Issuance of Penalty Show Cause Notice in Standard Proforma:
The assessee argued that the penalty show cause notice was issued in a standard proforma without striking off the inapplicable charge, violating the principle of natural justice as held by the Hon'ble Bombay High Court in CIT vs. Shri Samson Perinchery and PCIT vs. Goa Coastal Resorts and Recreation Pvt. Ltd. The Tribunal noted that the penalty proceedings were initiated based on the assessment order, which was partly based on estimation.

4. Levy of Penalty Under Section 271(1)(c) Based on Estimated Profit Addition:
The AO levied a penalty of ?2,58,886 under section 271(1)(c) based on the estimated profit addition of 25% on alleged bogus purchases. The Tribunal observed that the penalty was levied without any independent enquiry by the AO and was solely based on information from the Sales Tax Department. The Tribunal, following the decision in DCIT vs. M/s. Toshvin Analytical Pvt. Ltd., held that the penalty was not sustainable as the addition was based on estimation.

5. Deletion of Penalty by CIT(A) Despite Alleged Bogus Purchases:
The Revenue contended that the CIT(A) erred in deleting the penalty despite the assessee's failure to prove the genuineness of the alleged bogus purchases. The Tribunal noted that the CIT(A) restricted the penalty to ?9,65,425, being 25% of the total bogus purchases. However, since the Tribunal reduced the addition to 12.5% of the bogus purchases, the penalty based on the higher percentage was not justified.

6. Onus to Justify the Claim of Expenses and Genuineness of Purchases:
The Revenue argued that the onus to justify the claim of expenses was on the assessee, and the assessee failed to discharge it concerning the purchases made from non-existent vendors. The Tribunal held that since the AO did not conduct any independent enquiry and solely relied on the information from the Sales Tax Department, the penalty was not sustainable. The Tribunal emphasized that the Revenue did not reach a specific conclusion that the assessee concealed income or furnished inaccurate particulars.

Conclusion:
The Tribunal partly allowed the assessee's appeal by reducing the addition to 12.5% of the alleged bogus purchases and dismissed the Revenue's appeal. The Tribunal also allowed the assessee's appeal against the penalty and dismissed the Revenue's appeal, holding that the penalty was not sustainable as the addition was based on estimation without any independent enquiry by the AO. The order was pronounced in the open court on 17th March 2022.

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