Merely because the assessee has claimed the expenditure which was not acceptable to the Revenue that by itself does not mean that the assessee has concealed its particulars of income.

1. The present appeal has been filed by the Revenue challenging the order dated 21st May 2019, passed by the learned Commissioner (Appeals)–2, Mumbai, for the assessment year 2009–10.

2. When the appeal was called for hearing, neither the assessee nor any one on behalf of the respondent assessee was present to represent its case. There is no application seeking adjournment either.

Considering the nature of dispute, we proceed to dispose off the appeal ex–parte qua the respondent assessee after hearing the learned Departmental Representative and on the basis of material available on record.

3. The sole dispute that we need to adjudicate is, the learned Commissioner (Appeals) erred in deleting the penalty of ` 63,920, imposed under section 271(1)(c) (of Income Tax Act, 1961) (for short "the Act") by the Assessing Officer.

4. Brief facts are, the assessee being a firm is engaged in the business of fabrication and manufacturing of pharmaceutical packaging materials. For the assessment year under consideration, the assessee filed its return of income electronically on 25th September 2009, declaring total income of ` 1,04,330. The return of income filed by the assessee was initially processed under section 143(1) (of Income Tax Act, 1961). Subsequently, the Assessing Officer re–opened the assessments under section 147 (of Income Tax Act, 1961) and the notice dated 10th March 2014 under section 148 (of Income Tax Act, 1961). The assessee, in response to such notices, furnished details of eight parties from whom the assessee had purchased material worth ` 11,82,092. The details are as follows:–

Sl. no. Name of Party Purchase Amount

1. Balaji Trading ` 43,867

2. Parshva & Co. ` 66,356

3. Deepali Enterprises ` 2,01,130

4. Siddhivinayak Trading Co. ` 2,84,669

5. Renuka Sales Corporation ` 67,189

6. K.R.C. Trading Co. P. Ltd. ` 3,10,956

7. Daksha Enterprises ` 1,04,000

8. Mahavir Enterprises ` 1,03,925

Total:– ` 11,82,092

5. In the course of assessment proceedings, the Assessing Officer on verification of the data uploaded by the Sales Tax Department on its website, observed that the aforesaid parties from whom the assessee has claimed as purchases / expenses, are involved in issuing hawala bills. The Assessing Officer, therefore, issued notice dated 4th February 2015, under section 133(6) (of Income Tax Act, 1961) to the parties, however, no reply was received from these parties. The Assessing Officer called upon the assessee to prove the genuineness of the aforesaid purchases through supporting evidences. Since the evidences produced by the assessee vide letter dated 10th March 2015, were not to the satisfaction of the Assessing Officer, the Assessing Officer held that the purchases shown by the assessee are non– genuine. Hence, the Assessing Officer, relying upon certain judicial pronouncement, he made addition @ 17.5% to the extent of non– genuine purchases worth ` 11,82,092 and accordingly made disallowance of ` 2,06,866 which was added to the total income of the assessee. The Assessing Officer held that since the assessee tried to evade taxes through producing bogus purchase bills thereby concealed particulars of its actual income, therefore, the Assessing Officer imposed penalty of ` 63,920, under section 271(1)(c) (of Income Tax Act, 1961) for filing inaccurate particulars of income. The assessee accepted the addition to the extent of 17.5% i.e., ` 2,06,866, made by the Assessing Officer on account of non–genuine purchases and chose not to appeal for such addition. However, the assessee filed appeal before the learned Commissioner (Appeals) challenging the penalty of ` 63,920, imposed under section 271(1)(c) (of Income Tax Act, 1961) for the alleged filling of inaccurate particulars of income on account of treating the purchases as non–genuine.

6. Before the learned Commissioner (Appeals), the assessee filed a detailed written submission and contended that in the assessment proceedings, the estimated addition made by the Assessing Officer was on ad–hoc basis on account of suspicious purchases and against such ad–hoc addition, penalty cannot be imposed under section 271(1)(c) (of Income Tax Act, 1961). the learned Commissioner (Appeals), however, after considering the written submissions of the assessee observed that there is a normal tendency to subject an assessee to penalty under section 271(1)(c) (of Income Tax Act, 1961) in all cases where the assessee refrains to file an appeal pursuant to an assessment order by accepting the additions made in the assessment order. He further observed that the penalty is straightaway levied merely because no appeal has been filed against the quantum order. The learned Commissioner (Appeals) held that the levy of penalty is merely on disallowance of a percentage of expenditure and not finding of concealment to reduce taxable income. The addition made on account of disallowance of a percentage of expenditure as bogus automatically cannot justify the penalty levied under section 271(1)(c) (of Income Tax Act, 1961). While coming to such conclusion, the learned Commissioner (Appeals) relied upon certain decisions viz. (ii) Sir Shadilal Sugar Mills, 168 ITRT 7051 (SC); (ii) CIT v/s Manjunatha Cotton & Ginning Factory, [2013] 35 taxmann.com 20) (Kar.); (iii) Earthmoving Equipment Service Corp. v/s DCIT, ITA no. 6617/Mum./ 2014 (Mum.); (iv) Dilip N. Shroff v/s JCIT, [2007] 291 ITR 519 (SC); (v) ETCO Profiles Pvt. Ltd. v/s ACIT, ITA no.5351/Mum./ 2021 (Mum.) and (vi) CIT v/s Reliance Petro Products Pvt. Ltd. [2010] 322 ITR 158 (SC). Being aggrieved by the order of the learned Commissioner (Appeals), the Revenue is in appeal before the Tribunal.

7. Before us, the learned Departmental Representative relied upon the order of the Assessing Officer. He submitted that the Assessing Officer levied penalty consequent upon the disallowance made on account of non–genuine purchases made by the assessee. He submitted that the assessee failed to comply with the penalty notice, therefore, the Assessing Officer decided the penalty proceedings on the basis of material on record and submissions made by the assessee in response to earlier show cause notices. He submitted that the assessee has tried to evade taxes by furnishing bogus purchase bills and hence, the assessee concealed particulars of its income. The assessee could not substantiate its claim with documentary evidences and hence the Assessing Officer was justified in levying penalty under section 271(1)(c) (of Income Tax Act, 1961).

8. Considered the submissions of the learned Departmental Representative and perused the material on record. The issue to be decided by us is with regard to levy of penalty by the Assessing Officer. From the order of the authorities below, we find that the assessee has accepted the addition made by the Assessing Officer on account of non–genuine purchase @ 17.5% of ` 11,82,092 and resulted in disallowance of ` 2,06,866, and refrained itself from filing any appeal before the first appellate authority. We further notice that in view of the assessee not filing any appeal against the disallowance of ` 2,06,866 before the first appellate authority, the Assessing Officer levied penalty of ` 63,920, under section 271(1)(c) (of Income Tax Act, 1961) for the alleged non–genuine purchases. In our opinion, because the assessee has accepted the assessment order and for buying peace if the assessee agrees to face the disallowance so made by the Assessing Officer, it does not mean the assessee has concealed inaccurate particulars of income which is resulted in imposition of levying penalty under section 271(1)(c) (of Income Tax Act, 1961). The Assessing Officer has failed to meet the conditions of imposing penalty under section 271(1)(c) (of Income Tax Act, 1961) and hence, the penalty levied, in our opinion, is not sustainable in the case when the income enhanced based on estimation. We find that the assessee had furnished all the details of purchases as well as the income accrued was shown in the return of income. Even the payments made were by way of issuing cheques which were not considered by the Assessing Officer. Merely because the assessee has claimed the expenditure which was not acceptable to the Revenue that by itself does not mean that the assessee has concealed its particulars of income. With these observations, we hold that the learned Commissioner (Appeals) has properly held that the addition made on account of disallowance of a percentage of expenditure as bogus automatically cannot justify the penalty levied under section 271(1)(c) (of Income Tax Act, 1961) and hence, we do not find any infirmity in the order passed by the learned Commissioner (Appeals) warranting interference at the instance of the Revenue. Consequently, we uphold the order of the learned Commissioner (Appeals) by dismissing the grounds of appeal raised.

9. In the result, appeal is dismissed.

Order pronounced in the open court on 9.03.2021.

Sd/-

C.N. PRASAD

JUDICIAL MEMBER

Sd/-

S. RIFAUR RAHMAN

ACCOUNTANT MEMBER