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2021 (3) TMI 513 - AT - Income TaxPenalty levied u/s. 271(1)(c) - Estimation of income on bogus purchases - HELD THAT - It is a settled position of law that penalty cannot be levied when an adhoc estimation is made. In this case an adhoc estimation was made by the Ld.CIT(A) restricting the profit element in the purchases @25%. See SHRI DEEPAK GOGRI VERSUS THE INCOME TAX OFFICER, WARD 25 (3) (2) , MUMBAI 2017 (11) TMI 1857 - ITAT MUMBAI. As decided in AERO TRADERS (P) LTD. 2010 (1) TMI 32 - DELHI HIGH COURT 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 Assessing Officer treated purchases as non-genuine. Ld.CIT(A) considering the evidences restricted the disallowance to an extent of 25% on the non-genuine purchases - Ld.CIT(A) following various judicial pronouncements deleted the penalty levied by the Assessing Officer. Thus, we do not observe any infirmity in the order passed by the Ld.CIT(A) in deleting the penalty u/s. 271(1)(c) of the Act levied by the Assessing Officer for the Assessment Year - Decided in favour of assessee.
Issues Involved:
1. Validity of the penalty levied under Section 271(1)(c) of the Income Tax Act. 2. Treatment of non-genuine purchases and estimation of profit element. 3. Applicability of judicial precedents in penalty cases involving estimated additions. Issue-wise Detailed Analysis: 1. Validity of the penalty levied under Section 271(1)(c) of the Income Tax Act: The revenue appealed against the order of the Commissioner of Income-tax (Appeals) [CIT(A)] which deleted the penalty levied under Section 271(1)(c) of the Income Tax Act by the Assessing Officer (AO). The penalty was initially imposed on the grounds that the assessee furnished inaccurate particulars of income. However, the CIT(A) concluded that no penalty could be levied where the addition was made on an estimated basis. The Appellate Tribunal upheld this view, emphasizing that "penalty cannot be levied when an adhoc estimation is made." 2. Treatment of non-genuine purchases and estimation of profit element: The AO had treated purchases amounting to ?3,13,404 from M/s. Navratna Impex as non-genuine based on information from the Sales Tax Department, Mumbai, and added this amount to the assessee's income. The CIT(A), however, restricted the disallowance to 25% of the non-genuine purchases. The Tribunal noted that the AO made an "adhoc estimation of profit on certain purchases treated as unexplained expenditure" and did not doubt the sales made from these purchases. The Tribunal cited several precedents where penalties were not sustained when additions were made on an estimated basis, reinforcing that "there is no concealment of income or furnishing of inaccurate particulars as the profit element was determined by way of adhoc estimation." 3. Applicability of judicial precedents in penalty cases involving estimated additions: The Tribunal referenced multiple cases to support its decision. In the case of Shri Deepak Gogri v. Income Tax Officer, it was held that "penalty cannot be imposed where the additions are made on estimate basis." Similarly, in DCIT v. Manohar Manak, Alloys Pvt. Ltd, the Tribunal found that the AO's addition was based on estimates without concrete evidence, and thus, penalty could not be imposed. The Tribunal also cited the Hon'ble Punjab & Haryana High Court in Harigopal Singh v. CIT, which held that "the provisions of Section 271(1)(c) of the Act are not attracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein on that basis." In conclusion, the Tribunal dismissed the revenue's appeal, affirming that the penalty under Section 271(1)(c) was not sustainable when the additions were based on adhoc estimations. The decision relied heavily on established judicial precedents that consistently held penalties inapplicable in cases of estimated additions. The order pronounced in the virtual court on 09.03.2021 concluded that the grounds raised by the revenue were rejected, and the appeal was dismissed.
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