2017 (9) TMI 1979 - AT - Income Tax

Penalty u/s 271(1) (c) - estimation of income on bogus purchases - assessee argued additions has been made on and estimate basis and that in case of estimation no penalties leviable - HELD THAT - Perusal of assessment order reveals that the assessing officer, while passing the assessment order under section 143(3) rws 147, made the addition on the basis of estimation. The assessing officer made addition @ 25% of the alleged bogus purchases. The revenue has not disputed that additions were made merely on the basis of estimation. It is settled law that no penalties is leviable under section 271(1)(c) for ad hoc /estimated additions.Accordingly, we are of the opinion that this is not a fit case for levy of penalty. In the result the grounds of appeal raised by the assessee is allowed.

Summary

Issues:
Penalty under section 271(1)(c) for estimation basis additions.

Analysis:
The judgment involves three appeals by the assessee against the penalty levied under section 271(1)(c) of the Income-tax Act for assessment years 2010-11, 2011-12, and 2012-13. The Commissioner (Appeals) confirmed the penalty in the impugned orders. The assessee contended that the additions were made on an estimate basis and penalties are not leviable for estimations. The assessing officer initiated penalty proceedings and levied a penalty of ?1,31,810. The assessee argued that no income was concealed, and complete details of purchases were provided. The assessing officer made additions based on estimation of alleged bogus purchases. The assessee cited various legal precedents to support the argument that penalties are not applicable for ad hoc/estimated additions. The revenue, however, claimed that the assessee benefited from accommodation entries in a hawala racket. The Tribunal observed that the additions were made solely on estimation basis, and penalties are not applicable for such additions as per settled law and legal precedents. Therefore, the Tribunal allowed the appeal, concluding that it was not a fit case for the levy of penalty.

For assessment years 2011-12 and 2012-13, the assessee raised identical grounds of appeal. Since the penalty for the assessment year 2010-11 was deleted based on the estimation basis of additions, the Tribunal followed the principle of consistency and allowed the appeals for all three assessment years. Consequently, all three appeals filed by the assessee were allowed, and the penalties were deleted.

The judgment highlights the importance of distinguishing between penalties for deliberate concealment versus penalties for estimations. It underscores the legal principle that penalties are not applicable for additions made solely on an estimation basis. The decision provides clarity on the application of penalties under section 271(1)(c) of the Income-tax Act in cases involving estimation-based additions.