2023 (12) TMI 1320 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - estimation of income on bogus purchases - HELD THAT - It is admitted position that in the present case, penalty notice was issued u/s 274 r/w 271 of the Act without deleting or striking off the inapplicable part. Thus, the statutory notice issued to the Appellant does not inform the Appellant about the charge against the Appellant whether penalty u/s 271(c) of the Act was sought to be levied for concealment of particulars of income or furnishing inaccurate particulars of income. Therefore, penalty levied u/s 271(1)(c) cannot be sustained as per the judgment of Mohammed Farhan A Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) Further, we note that in the quantum proceedings, the AO made addition of the entire alleged bogus purchases. CIT(A) and thereafter, the Tribunal restricted the addition to 12.5% of the alleged bogus purchases. The addition has been made in the hands of the Appellant on account of bogus purchase was on estimation basis and therefore, we hold that CIT(A) was not correct in rejecting the contention of the Appellant that no penalty u/s 271(1)(c) of the Act can be levied in the present case as the additions in the quantum proceedings were made/sustained on estimate basis. Our view draws strength from the decision of the Mumbai Bench of the Tribunal has, in the case of Orient Fabritech Pvt. Ltd. 2022 (6) TMI 829 - ITAT MUMBAI wherein in identical facts and circumstances, penalty levied under Section 271(1)(c) of the Act was deleted. Thus we delete the penalty levied u/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves the challenge to a penalty order u/s 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2009-10 based on alleged inaccurate particulars of income and the validity of the penalty notice issued without specifying the grounds for penalty.

Summary:
The Appellant challenged the penalty order u/s 271(1)(c) issued by the Ld. CIT(A) for the Assessment Year 2009-10, which was confirmed by the CIT(A). The Appellant contended that the penalty notice was defective as it did not specify the grounds for penalty and that the addition leading to penalty was based on estimation. The Tribunal noted that the penalty notice was indeed defective as it did not specify the charge against the Appellant. Additionally, the Tribunal observed that the addition was made on an estimation basis, leading to the conclusion that no penalty could be levied under section 271(1)(c) in such circumstances.

The Tribunal referred to a Full Bench decision of the Bombay High Court which held that a defect in the notice, such as not striking off irrelevant parts, would vitiate the penalty proceedings. Citing this precedent, the Tribunal found that the penalty notice issued to the Appellant was defective and did not inform the Appellant about the specific charge. The Tribunal also highlighted a previous case where penalty was deleted when additions were made on estimation basis, supporting the Appellant's argument in the present case.

Based on the above analysis, the Tribunal deleted the penalty levied under Section 271(1)(c) of the Act, allowing the grounds raised by the Appellant. The appeal by the Assessee was allowed, and the penalty was set aside.

This judgment emphasizes the importance of a valid penalty notice specifying the grounds for penalty and the inapplicability of penalty under section 271(1)(c) in cases where additions are made on estimation basis.

Order pronounced on 05.12.2023.