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2020 (5) TMI 83 - AT - Income TaxPenalty levied u/s 271(l)(c) - Bogus purchases - AO restricting the profit element in the alleged bogus purchases at 20.71% - penalty levied on estimate basis and voluntary surrender by the assessee - HELD THAT - It is a settled position of law that penalty cannot be levied when an adhoc estimation is made. On a perusal of the record, in this case we find that an estimation of Gross Profit was made by the Assessing Officer restricting the profit element in the alleged bogus purchases at 20.71% for the year under consideration. Similar view has been taken in the case of CIT v. Aero Traders Pvt. Ltd. 2010 (1) TMI 32 - DELHI HIGH COURT wherein the Hon'ble High Court affirmed the order of the Tribunal in holding that estimated rate of profit applied on the turnover of the assessee does not amount to concealment or furnishing inaccurate particulars. In the case on hand the AO has only estimated the Gross Profit on the alleged non-genuine purchases without there being any conclusive proof of concealment of income or furnishing inaccurate particulars of such income. No infirmity in the order passed by the CIT(A) in deleting the penalty u/s. 271(1)(c) levied by the Assessing Officer. - Decided in favour of assessee.
Issues Involved:
1. Justification of deleting penalty levied under Section 271(1)(c) of the Income Tax Act. 2. Assessment based on estimate basis and its implications on penalty. Issue-wise Detailed Analysis: 1. Justification of Deleting Penalty Levied Under Section 271(1)(c): The Revenue appealed against the order of the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], who had deleted the penalty levied under Section 271(1)(c). The penalty was originally imposed by the Assessing Officer (AO) on the grounds that the assessee had deliberately furnished inaccurate particulars of income and concealed income, as the purchases were deemed non-genuine. The ITAT Mumbai upheld the Ld.CIT(A)'s decision, stating that penalty cannot be levied when an estimation of Gross Profit is made. The Tribunal referred to the case of Shri Deepak Gogri v. Income Tax Officer, where it was held that no penalty is leviable on estimation of profit element on purchases. The Tribunal emphasized that the AO had made an ad-hoc estimation of profit on certain purchases treated as unexplained expenditure, and there was no concealment of income or furnishing of inaccurate particulars since the profit element was determined by way of ad-hoc estimation. 2. Assessment Based on Estimate Basis and Its Implications on Penalty: The Tribunal noted that the AO had estimated the profit element in non-genuine purchases at 20.71% based on the Gross Profit shown by the assessee. This estimation was made due to the assessee's inability to produce the parties or establish the movement of goods, and the notices issued to the parties were returned unserved. Despite this, the Tribunal held that penalty cannot be imposed where the additions are made on an estimate basis. The Tribunal cited several precedents to support this view, including: - DCIT v. Manohar Manak Alloys Pvt. Ltd: The AO made an addition on estimated basis due to bogus purchases, but the Tribunal held that penalty cannot be imposed on estimate basis. - Harigopal Singh v. CIT: The Punjab & Haryana High Court held that penalty under Section 271(1)(c) is not attracted where income is assessed on estimate basis and additions are made on that basis. - CIT v. Aero Traders Pvt. Ltd: The Delhi High Court affirmed that estimated rate of profit applied on turnover does not amount to concealment or furnishing inaccurate particulars. In conclusion, the ITAT Mumbai dismissed the Revenue's appeal, affirming that the penalty under Section 271(1)(c) cannot be sustained when the assessment is based on estimation. The Tribunal found no conclusive proof of concealment of income or furnishing inaccurate particulars by the assessee, thus upholding the Ld.CIT(A)'s order to delete the penalty.
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