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2021 (3) TMI 761 - AT - Income TaxPenalty u/s. 271(1)(c) - bogus purchases - disallowance to an extent of 12.5% of the non-genuine purchases - HELD THAT - It is a settled position of law that penalty cannot be levied when an ad hoc estimation is made. In this case Assessing Officer treated entire purchases as non-genuine. Ld. CIT(A) considering the evidences and various submissions of the assessee restricted the disallowance to an extent of 12.5% of the non-genuine purchases. Similar view has been taken by the Hon'ble Delhi High Court in the case of CIT v. Aero Traders Pvt. Ltd. 2010 (1) TMI 32 - DELHI HIGH COURT wherein 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 Ld. CIT(A) observed that the penalty was imposed based on estimation basis and following the decision in the case of Harigopal Singh v. CIT 2002 (8) TMI 65 - PUNJAB AND HARYANA HIGH COURT 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. Grounds raised by the revenue are rejected. Appeal of the revenue is dismissed.
Issues Involved:
1. Legitimacy of penalty levied under Section 271(1)(c) of the Income Tax Act. 2. Treatment of non-genuine purchases and the subsequent estimation of gross profit. 3. Applicability of penalty provisions when income is assessed on an estimation basis. Issue-wise Detailed Analysis: 1. Legitimacy of Penalty Levied under Section 271(1)(c) of the Income Tax Act: The primary issue revolves around whether the penalty levied under Section 271(1)(c) for furnishing inaccurate particulars of income is justified. The assessee's return was reassessed, leading to an additional income determination due to non-genuine purchases. The Assessing Officer (AO) imposed a penalty of ?41,074 under Section 271(1)(c), asserting that the assessee furnished inaccurate particulars of income. However, the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] deleted the penalty, reasoning that the disallowance was based on an estimation of gross profit, not on concrete evidence of concealment or furnishing inaccurate particulars. 2. Treatment of Non-Genuine Purchases and Subsequent Estimation of Gross Profit: The AO treated purchases worth ?10,63,392 as non-genuine based on information from the DGIT (Investigation) and the Sales Tax Department, which suggested that the assessee received accommodation entries without actual purchases. The AO added the entire amount to the assessee's income. Upon appeal, the Ld. CIT(A) restricted the disallowance to 12.5% of the non-genuine purchases, considering the evidence and submissions from the assessee. This reduction was based on the estimation of the profit element in the non-genuine purchases rather than treating the entire amount as concealed income. 3. Applicability of Penalty Provisions When Income is Assessed on Estimation Basis: The tribunal observed that penalty cannot be levied when the assessment is based on ad hoc estimation. It referenced several precedents, including: - In the case of Shri Deepak Gogri v. Income Tax Officer, it was held that there is no concealment or furnishing of inaccurate particulars when the profit element is determined by ad hoc estimation. - Similarly, in DCIT v. Manohar Manak, Alloys Pvt. Ltd., the tribunal held that penalty cannot be imposed where additions are made on an estimated basis without concrete evidence. - The Hon'ble Punjab & Haryana High Court in Harigopal Singh v. CIT [258 ITR 85] concluded that penalty provisions under Section 271(1)(c) are not attracted when income is assessed on an estimation basis. The court emphasized that there must be a positive act of concealment, which was not evident in this case. The tribunal also referenced the Hon'ble Delhi High Court in CIT v. Aero Traders Pvt. Ltd. [322 ITR 316], affirming that an estimated rate of profit does not amount to concealment or furnishing inaccurate particulars. Conclusion: The tribunal upheld the Ld. CIT(A)'s decision to delete the penalty, reiterating that penalties under Section 271(1)(c) are not applicable when income adjustments are made on an estimation basis without concrete evidence of concealment or inaccurate particulars. The appeal by the revenue was dismissed, affirming that the penalty imposed by the AO was not justified under the circumstances. Order Pronouncement: The order was pronounced on 05.03.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list on the notice board.
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