HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 149 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur Appellant Versus M/S. G.B. Impex, B-172, Rajendra Marg, Bapu Nagar, Jaipur PAN - AAFGF3052L Respondent For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 08/08/2017 By way of this appeal appellant has assailed judgment and order of Tribunal whereby Tribunal has dismissed appeal confirming order of CIT(A). Counsel for appellant has framed following question of law:- Whether on facts and in circumstances of case and in law ITAT has erred in cancelling penalty of Rs. 2541578/- levied u/s 271(1)(c) of IT Act 1961 on account of bogus unverifiable purchases. In view of observations made by Tribunal observing as under:- 3.1. In this regard, we have gone through assessment order and in respect of unverifiable purchases, we find that details of four parties (2 of 5) [ITA-149/2017] namely, M/s Anupam Exports & Imports, M/s K.S. Exports, M/s Rishab International and M/s Royal Gems & Arts along with their address, PAN, Sales Tax Registration No., confirmation, copy of purchase bills, mode of payment was submitted during course of assessment proceedings. Assessing officer has stated that assessee has not been able to prove genuineness of purchases of Rs 3,28,40,664 shown to have been made from these four parties. Assessing officer further stated in his order that from enquiries made by investigating wing, it was found that alleged sellers were not carrying on genuine business of selling goods and all these facts shown by assessee in name of non- existent/noncooperative parties are not genuine and other evidence regarding purchase invoice, sales tax registration, PAN and making payments by cheques etc are irrelevant with reference to non- existent/non-cooperative parties. Assessing officer further stated that assessee neither produced above sellers parties nor produced books of accounts of these sellers parties and even summons issued u/s 131 of Act were received back unserved. Hence, in absence of verification of purchases, genuineness of purchases shown to have been made from above alleged sellers have not been proved. Assessing officer thereafter following decision of Hon ble Gujarat High Court in case of M/s Sanjay oil Cake Industries (supra) disallowed 25% of unverifiable purchases and made trading addition of Rs. 82,10,166/-. 3.7 In this regard, we refer to decision of Coordinate Bench in case of M/s Chempure Vs. ITO (supra) where facts of case briefly were that AO made addition of Rs. 15,99,255/- by treating entire purchases from 4 parties as bogus/unverifiable. In appeal CIT(A) reduced addition to 20% of purchase & finally ITAT reduced it to 12.5% of purchases. On addition confirmed AO imposed penalty u/s 271(1)(c) which was confirmed by CIT(A). On appeal Hon ble ITAT deleted penalty by giving following findings at Para 11 & Para 14:- 11. ....But in case under consideration, there was no dispute that purchases were made, though assessee failed to substantiate its claim to extent that purchases were made from that particular party. Therefore, in case under consideration word "particulars" used in s. 271(1)(c) would embrace meaning of purchases made and not party from whom it (3 of 5) [ITA-149/2017] was made. As stated above that words "concealed", "particulars" and "inaccurate" are with regard to income not with regard to any others. From which party purchases were made is not much important while computing income. important aspect in computing income is purchases. In case under consideration, purchases were recorded regularly in books of account on day to day basis. Tribunal while deciding quantum matter observed that assessee must have made purchases from market from unregistered dealers in cash and details could not be obtained from such dealers. assessee, therefore, obtained hawala bills from Mr. F.H. Rizwi, Tribunal further observed that CIT(A) was of view that in these circumstances, assessee must have inflated purchase bills and on that account disallowance to extent of 25 per cent was found to be reasonable. case of AO in quantum matter was that entire purchases were disallowable whereas appellate authorities found that assessee must have made purchases but same may not be from Mr. F.H. Rizwi. Actual purchases made by assessee were not doubted by appellate authorities while deciding quantum matter. However, considering circumstances, they confirmed addition to extent of 25 per cent of relevant purchase on basis of facts, figures and particulars provided by assessee. Thus, main basis on which AO levied penalty was not sustained by appellate authorities.(Emphasis supplied) 14. If we consider facts of case under consideration from point of view of businessman for that purposes we would like to refer general human probability/tendency in business circle. That when transactions with particular party are over that party may not ready to co-operate in giving information which were exactly asked by AO to assessee which were to collect from party by assessee. As stated above that under these circumstances, Revenue authorities have ample such powers under Act and if they are not exercising such powers, assessee cannot be blamed for concealing particulars and/or furnishing inaccurate particulars of income. Further, business is managed through employees/staff in that circumstances, assessee may more interested in cost then parties to whom it was purchased. In respect of quantum matter if assessee failed to submit such material information to substantiate their claim addition could be sustained but this aspect of human probability tendency of non-co-operation by (4 of 5) [ITA-149/2017] parties after business transaction is over, is required to be considered while deciding bona fide aspect of assessee in penalty matter under s. 271(1)(c) of Act. case of assessee falls under essence of Part B of Explanation. assessee offered reasonable explanation. AO has not given finding based on some contradictory evidence to disapprove that explanation offered by assessee which assessee is not able, to substantiate and fails to prove that such explanation is bona fide and that all facts relating to same and material to computation of his total income have been disclosed by him. Penalty under s. 271(1)(c) cannot be levied unless case is strictly covered by provisions of s. 271(1)(c). 3.9 Further, regarding basis of 15% of unverifiable purchases as confirmed by Coordinate Bench, we find that necessary guidance has been sought from decision of Sanjay Oil Cake (supra) and considering facts and circumstances of case along with other cases, Coordinate Bench has confirmed addition of 15% of unverifiable purchases following test of reasonability. However, we find that there is no evidence on record to suggest that purchase rate/qty. of various items purchased from alleged unverifiable parties on different dates was lower than rate at which it was purchased from other parties whose purchases are accepted to be verifiable purchases. Therefore, we agree with contention of ld AR that addition finally confirmed by Hon ble ITAT at 15% of alleged unverifiable purchases is on estimation basis and not on account of any material on record that assessee has inflated purchases. Where addition has been made on estimation basis, decision of Hon ble Rajasthan High Court in case of Shiv lal Tak (supra) and Hon ble Punjab &Haryana High Court in case of Harigopal singh (supra) supports case of assessee that penalty cannot be levied in such cases. No contrary decision has been brought to our notice by ld DR. Therefore, respectfully following these decisions, impunged penalty levied on addition on estimation basis has rightly been deleted by ld CIT(A). We see no reason to interfere with matter. contention of 375 was never raised therefore, we have not considered argument regarding Section 375. (5 of 5) [ITA-149/2017] Hence, appeal stands dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/142 Principal Commissioner of Income-tax, Jaipur-2, Jaipur v. G.B. Impex