TaxTMI 
TaxTMI 
2025 (9) TMI 1041
X X X X Extracts X X X X
X X X X Extracts X X X X
....A) in deleting the penalty of Rs. 2,75,000/- levied by the Assessing Officer under Section 271(1)(c) of the Act without appreciating that the Assessee had failed to prove the genuineness of the impugned purchases from hawala dealers and hence had concealed its income by way of bogus B. The Appellant submits that the impugned order dated 31.07.2020 passed by the Income Tax Appellate Tribunal 'C' Bench, Mumbai, is bad-in-law and is liable to be quashed and/or set aside on the following amongst other grounds, which are urged without prejudice to one another." 3. Briefly the facts are:- The assessee was engaged in the business of operating a photo studio and trading in photographic material. It had filed return of income for A.Y. 2011-12 dated 29 September 2011 declaring a total income of Rs. 4,32,530/-. Subsequently, the case was re-opened by issuing a notice under Section 148 of the Act on 23 March 2016. The re-assessment was completed under Section 143(3) read with Section 147 of the Act by an order dated 29 August 2016. The total income of the assessee was determined at Rs. 12,32,570/- after making an addition of Rs. 7,40,776/- on account of bogus purch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed argument put forth by the assessee and on due consideration of the facts & circumstances of the case, it appears that the purchase itself cannot be doubted, but on the basis of enquiries conducted by Sales Tax Department and investigation done by the undersigned, there is an element of suspicion that the book results arrived at by including these purchases do not represent true profit derived by the assessee from its business. As such, the books of account of the assessee to the extent of these purchases cannot be relied upon and deserve to be rejected u/s. 145(3) of the I.T.Act. In the instant case, all the facts and circumstances outlined above leads to the conclusion that although the purchases made by the assessee from the aforesaid parties is not in doubt but at the same time it is difficult to accept the purchase price shown on the invoices/bills issued by the parties in question. It can still be fictitious invoices in the name of the aforesaid parties appeared to have been really received because without receiving such material the corresponding sales would not have been possible. Thus the receipt of material in question is not in really received because without receiving....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see had submitted documents before the Assessing Officer, namely, the ledger account of the alleged bogus parties, copies of tax invoices of the alleged bogus parties, copy of bank statements reflecting payments made through Account Payee Crossed Cheques and extract of Stock Statement reflecting receipt of purchases made from the alleged bogus parties and corresponding dispatch of goods. The CIT(A), considering the principles of law on the issues involved, observed that the basis on which the Assessing Officer made the addition in the assessment order on the alleged bogus purchases was the inference drawn by the Assessing Officer that the assessee had made purchases from the grey market without bills and obtained the bills from Hawala Suppliers at a higher price. It was observed that in reaching to this conclusion, a factual inference was made by the Assessing Officer merely on the basis of the surrounding circumstances and there was no positive evidence to show that the appellant did not make the purchases from those who had issued the bills and in fact had made the purchases from the grey market. It was further observed that the Assessing Officer had recorded that the concerned h....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Appeal. Submissions 12. Mr. Suresh Kumar, learned counsel for the Revenue, has made elaborate submissions assailing the impugned order and supporting the view taken by the Assessing Officer in passing the penalty order under Section 271(1)(c). It is his submission that this is a clear case as observed by the Assessing Officer, wherein on the part of the assessee, there was an element of suppression in the books on the nature of the purchases and the bills and/or invoices submitted to that effect by the assessee which came to the knowledge of the Assessing Officer, on the basis of enquiry which is conducted with the Sales Tax Department and the investigation of the Assessing Officer, to the effect. Hence, the alleged purchases as claimed by the assessee did not represent the true profit derived by the assessee from its business. It is his submission that the books of accounts of the assessee to the extent of such purchases, were hence rightly disbelieved by the Assessing Officer and rejected under Section 145(3) of the Act. It is his submission that the view taken by the Assessing Officer is hence the correct view, when it is held by the Assessing Officer that it was difficul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er towards bogus purchases was merely on the inference drawn by the Assessing Officer, that the assessee had made the real purchases from the grey market without bills and/or had obtained bills from alleged Hawala Suppliers at a higher price and without there being any supporting material, when infact there was tangible material before the Assessing Officer. Accordingly, it is submitted that certainly this was not a case where the provisions of Section 271(1)(c) for levy of penalty were attracted, to hold that the petitioner had in any manner furnished inaccurate particulars or there was any concealment of income and more particularly when a penalty was sought to be levied only on an ad hoc estimation was made by the Assessing Officer in making the additions. In support of her contentions, she has placed reliance on the decision of the Division Bench of this Court in Principal Commissioner of Income Tax-29, Mumbai Vs. G. M. Finance & Trading Company Income Tax Appeal No. 1627 of 2016 decision dated 4 March 2019, Commissioner of Income-tax Vs. Krishi Tyre Retreading & Rubber Industries [2014] 44 taxmann.com 9 (Rajasthan) & Vijay Proteins Ltd. Vs. Commissioner of Income-tax [2015] 58....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsciously concealed the particulars of his income and/or had deliberately furnished inaccurate particulars of income to gain an undue advantage of not offering the real income to tax. A clear subjective satisfaction of these essentials is a sine qua non for the Assessing Officer to levy a penalty. Penalty proceedings are penal in nature, as the intention of such provisions is to create an effective deterrent, which will restrain the assessee from adopting any practices detrimental to the fair and realistic assessment as the law would mandate. 17. In the facts of the present case, in our opinion, the approach of the assessee was certainly, not of the nature which can be recognized to involve any concealment of particulars of income and/or furnishing inaccurate particulars of income. The reason being that the penalty could not have been levied when an ad-hoc estimation of the assessee's income was made by the Assessing Officer who restricted the profit element in the purchases at 12.5%. This encompasses that the Assessing Officer accepted the sales made by the assessee and which were subject matter of the invoices / bills which were produced by the assessee. Thus, this is not the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is of the information received by the Assessing Officer or his investigation with the Sales Tax Department, when admittedly such material was not furnished to the assessee, there being nothing on record to indicate that the assessee had accepted such material or the investigation as undertaken by the Assessing Officer to accept the purchases to be bogus. Hence, there was no independent application of mind by the Assessing Officer when he appears to have relied on the information of the Sales Tax Department. In this view of the matter, when the Assessing Officer proceeded to estimate the income from the bogus purchases at 12.5%, we do not find that this could be conceived to be a case of concealment of income or a case of inadequate particulars of income being furnished by the assessee. In such context, we may refer to the decision of the Division Bench of this Court in Pr. Commissioner of Income Tax-1 Vs. SVD Resins & Plastics Pvt. Ltd. (2025) 474 ITR 151 to which one of us (G. S. Kulkarni, J.) was a member, wherein the Court held that the information derived by the Assessing Officer from the Sales Tax Department without the same being furnished to the Assessee and not proved, was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s bogus transactions. 12. In our opinion, a full addition could be made only on the basis of proper proof of bogus purchases being available as the law would recognise before the Assessing Officer, of a nature which would unequivocally indicate that the transactions were wholly bogus. In the absence of such proof, by no stretch of imagination, a conclusion could be arrived, that the entire expenditure claimed by the petitioner qua such transactions need to be added, to be taxed in the hands of the assessee. 13. In a situation as this, the A.O. would be required to carefully consider all such materials to come to a conclusion that the transactions are found to be bogus. Such investigation or enquiry by the Assessing Officer also cannot be an enquiry which would be contrary to the assessments already undertaken by the Sales Tax Authorities on the same transactions. This would create an anomalous situation on the sale-purchase transactions. Hence, in our opinion, wherever relevant any conclusion in regard to the transactions being bogus, needs to be arrived only after the A.O. consults the Sales Tax Department and a thorough enquiry in regard to such specific transac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the decision in Commissioner of Income Tax vs. Krishi Tyre Retreading and Rubber Industries [2014] 44 taxmann.com 9 (Rajasthan) held that penalty could not have been imposed under Section 271(1)(c) of the Act, when the addition was sustained purely on estimate basis or when the addition was made which was on a pure guess work, hence, no penalty under Section 271(1)(c) of the Act could be said to be leviable on such guess work or estimation. The Court accordingly answered the question in favour of the assessee, rejecting levy of penalty under Section 271(1)(c). 21. The aforesaid discussion would make us conclude, that the Assessing Officer could not have come to a conclusion of the present case attracting proceedings for levy of penalty, when the Assessing Officer had already taken a position on materials which were available before him in the course of assessment proceedings, in computing the amount of tax payable by the assessee, by making appropriate additions on the basis of estimates derived in passing of the assessment order. In other words, for the purpose of assessment proceedings, the relevant materials were accepted, to be not amounting to concealment of particulars....