2023 (10) TMI 1395 - AT - Income Tax

Penalty u/s 271(1)(c) - Estimation of income on Bogus purchases - in quantum assessment before Tribunal the disallowances / additions of impugned purchase were restricted to 5% - HELD THAT - We find that ultimately the addition was restricted to 5% being average profit ratio in the industry. Such disallowance was restricted by following decisions of various benches of Tribunal and by following some decisions of jurisdictional High Court. In our considered view the addition was ultimately restricted by Tribunal on ad hoc to the extent of average profit ratio. We find this combination in Nazar Impex P Ltd 2022 (7) TMI 119 - ITAT SURAT while considering the similar contentions of the parties on levy of penalty on similar estimated additions of similar purchase deleted the similar penalty u/s 271(1)(c) by taking view that no penalty is leviable on estimated additions. While deleting the similar penalty we followed the decision of jurisdictional High Court in Vijay Proteins Limited 2015 (1) TMI 828 - GUJARAT HIGH COURT . No justification in levying the penalty by assessing officer on the additions of bogus purchase which were ultimately restricted on estimation average of profit in the similar business. Thus the assessee succeeds.

Summary

Issues involved: Appeal against penalty u/s 271(1)(c) of the Income Tax Act, 1961 for AY 2007-08 based on validity of notice and merit of the case.

Validity of Notice:
The appeal challenged the validity of the notice issued by the assessing officer under section 271(1)(c) for concealment of income or furnishing inaccurate particulars. The assessing officer's failure to specify the charges in the notice was contested, rendering the subsequent order void ab initio. The AR for the assessee argued that the notice and assessment order did not contain specific charges. The AR relied on case laws to support this contention.

Merit of the Case:
Regarding the merit of the case, the assessing officer had made an addition of Rs. 7.15 Crore for bogus purchases, which was later restricted to 5% of the disputed purchases by the CIT(A) and Tribunal. The AR contended that penalty on estimated additions is not leviable, citing various decisions. The revenue's representative supported the lower authorities' order, emphasizing the Tribunal's findings on the bogus purchases.

The Tribunal noted that the assessing officer's addition for bogus purchases was reduced to 5% by the CIT(A) and Tribunal. The penalty was calculated at 100% of the tax sought to be evaded. However, the Tribunal found that the penalty was not justified as the additions were based on estimation of average profit ratio, following precedents and High Court decisions. Citing a specific case, the Tribunal ruled in favor of the assessee, concluding that no penalty was warranted on the estimated additions. As a result, the appeal of the assessee was allowed.

The judgment was pronounced on 19/10/2023 by the Appellate Tribunal ITAT SURAT, with Shri Pawan Singh, Judicial Member, and Dr. Arjun Lal Saini, Accountant Member presiding.