Quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition/upholding of a penalty u/s 271(1)(c) (of Income Tax Act, 1961).

The present appeal filed by the revenue is directed against the order passed by the CIT(A)-22, Mumbai, dated 14.06.2019, which in turn arises from the order passed by the A.O under Sec. 271(1)(c) (of Income Tax Act, 1961) (for short „Act‟), dated 28.06.2011. The revenue has assailed the impugned order on the following grounds of appeal before us:

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty imposed in respect of addition on account of bogus purchases, to the extent of 12.5% of such purchases, in spite of the fact that the assessee had not contested the quantum addition before appellate authorities which amounted to acceptance of furnishing inaccurate particulars of income.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the factual position nowhere leads to concealment of income or furnishing inaccurate particulars of income, in spite of the fact that the claim of purchases from the stated suppliers remained to be established which amounted to suppression of income by way of reduced gross profit & resultant taxable income.

3. The appellant craves leave to add, amend vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.

4. The appellant prays that the order of CIT(A)-22, Mumbai on the above ground be set aside and that of the Assessing Officer be restored."

2. Briefly stated, the assessee company which is engaged in the business of construction had filed its return of income for A.Y. 2010-11 on 30.09.2010, declaring a total income of Rs.20,03,620/-. The return of income filed by the assessee was processed as such under Sec.143(1) (of Income Tax Act, 1961).

Subsequently, on the basis of information received from the Investigation wing, Mumbai, that the assessee as a beneficiary had obtained accommodation entries of purchases, its case was reopened by the A.O under Sec. 147 (of Income Tax Act, 1961). During the course of the assessment proceedings it was observed by the A.O that the assessee had claimed to have made purchases aggregating to Rs.22,98,918/- from the following tainted parties:

Sr. No. Name of the party Amount (Rs.)

1. Dhruv Sales Corporation 1,98,281

2. Om Corporation 50,600

3. Naman Enterprises 1,84,269

4. Shantinath Corporation 28,800

5. Bhavani Trade Link 7,14,569

6. Ramdev Trading 1,16,480

7. Shubhlaxmi Sales Corp. 21,676

8. Navdeep Trading Corpn. 1,82,483

9. Savita International 33,311

10. Darshan Sales Corporation 5,13,818

11. Moksh Trading Company 1,49,012

12. Mahavir Enterprises 1,05,619

Total 22,98,918

As the assessee failed to substantiate the genuineness and veracity of the aforesaid purchase transactions, the A.O, after taking cognizance of the fact that the sales corresponding to the impugned purchases had been accounted by the assessee in its books of account, therein held a conviction that the assessee had made the impugned purchases not from the aforementioned hawala parties but from the open/grey market. Observing, that the assessee would had procured the goods from the open/grey market at a discounted value as against that booked in its books of account, the A.O added 12.5% of the value of the impugned purchases of Rs.22,98,918/- and made an addition of Rs.2,87,365/-. At the time of culminating the assessment the A.O also initiated penalty proceedings under Sec.271(1)(c) (of Income Tax Act, 1961).

3. After the culmination of the assessment proceedings, the A.O vide his order passed under Sec. 271(1)(c) (of Income Tax Act, 1961), dated 28.06.2018 imposed a penalty for furnishing of inaccurate particulars of income of amounting to Rs.88,796/- under Sec. 271(1)(c) (of Income Tax Act, 1961).

4. Aggrieved, the assessee assailed the penalty imposed by the A.O under Sec. 271(1)(c) (of Income Tax Act, 1961) in appeal before the CIT(A). Observing, that the A.O had at no stage rejected the books of account of the assessee, the CIT(A) was of the view that merely on the count of rejection of the explanation of the assessee penalty under Sec. 271(1)(c) (of Income Tax Act, 1961) was not liable to be imposed.

Accordingly, the CIT(A) vacated the penalty imposed by the A.O under Sec. 271(1)(c) (of Income Tax Act, 1961).

5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. As the assessee respondent despite having been put to notice about the hearing of the appeal had failed to put up an appearance before us, we, thus, as per Rule 25 of the Appellate Tribunal Rules, 1962 proceed with and dispose off the appeal after hearing the appellant revenue and perusing the orders of the lower authorities. On a perusal of the records, we find that the assessee had been saddled with a penalty under Sec. 271(1)(c) (of Income Tax Act, 1961) of Rs.88,796/- by the A.O which was thereafter quashed by the CIT(A).

6. Aggrieved, the revenue has assailed the order of the CIT(A) vacating the penalty imposed by the A.O under Sec. 271(1)(c) (of Income Tax Act, 1961) in appeal before us. Admittedly, the quantum of penalty imposed by the A.O u/s 271(1)(c) (of Income Tax Act, 1961) under dispute is Rs.88,796/-, which is substantially below the threshold limit of Rs.50 lac as had been provided in the latest CBDT circular No. 17/2019, dated 08.08.2019, that contemplates the tax effect for filing of the appeals by the revenue. However, it is the claim of the ld. D.R that as the present appeal is covered by the exception carved out in clause 10(e) of the CBDT Circular No. 3 of 2018 (as amended on 20.08.2018) thus, the appeal filed by the revenue is maintainable.

7. Before adverting any further it would be relevant to cull out the exception carved out in clause 10(e) of the CBDT Circular No. 3/2018 (as amended on 20.08.2018), which reads as under:

“10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect: -

(e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI / ED / DRI / SFIO / Directorate General of GST Intelligence (DGGI)”. Admittedly, it is a settled position of law that quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition/upholding of a penalty u/s 271(1)(c) (of Income Tax Act, 1961). Adopting the same logic,we are of the considered view that unless a specific exception is provided in the Circular w.r.t penalty also, it could by no means be construed that penalty was to be treated at par with the quantum additions. As is discernible from Clause 10(e) of the aforesaid CBDT Circular No. 3/2018 (as amended on 20.08.2018), the same applied only to additions which were based on information received from external sources. As noticed by us hereinabove, since the levy of penalty by no means could be construed as an addition within the meaning of Clause 10(e) of the aforesaid circular therefore, we do not find any merit in the contentions advanced by the ld. D.R that the aforesaid exception carved out in the CBDT Circular No. 3/2018 (supra) would also take within its realm a penalty imposed under Sec. 271(1)(c) (of Income Tax Act, 1961) w.r.t the additions made by the A.O towards bogus purchases on the basis of information received from Sales Tax Department,i.e an external agency. Accordingly, finding favour with the claim of the ld. A.R that the appeal of the revenue is covered by the CBDT Circular No. 17/2019, dated 08.08.2019, the same,thus, in our considered view is not maintainable.

Accordingly, we herein dismiss the appeal of the revenue, for the reason, that the tax effect therein involved is lower than that contemplated in the aforesaid CBDT Circular fixing the monetary limit of filing of appeals by the revenue before the Tribunal.

8. Resultantly, the appeal of the revenue is dismissed.

Order pronounced in the open court on 03.03.2021

Sd/- Sd/-

M. Balaganesh Ravish Sood

(ACCOUNTANT MEMBER) (JUDICIAL MEMBER)

Mumbai, Date: 03.03.2021