2021 (3) TMI 1043 - AT - Income Tax

Penalty 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 ad hoc estimation is made. In both the cases an ad hoc estimation was made by the Assessing Officer restricting the profit element in the purchases @25%. As relying on SHRI DEEPAK GOGRI 2017 (11) TMI 1857 - ITAT MUMBAI and 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. On hand the Assessing Officer 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. 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 both the Assessment Years. Grounds raised by the revenue are rejected.

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act by the Commissioner of Income-tax (Appeals).
2. Treatment of purchases as non-genuine by the Assessing Officer.
3. Estimation of profit element from non-genuine purchases.
4. Applicability of penalty when income is determined by ad hoc estimation.

Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c):
The appeals were filed by the revenue against the orders of the Commissioner of Income-tax (Appeals) [CIT(A)], who deleted the penalty levied under Section 271(1)(c) of the Income Tax Act for the Assessment Years (A.Y.) 2009-10 and 2010-11. The CIT(A) had deleted the penalty on the grounds that the disallowance was based on an estimation of Gross Profit on purchases.

2. Treatment of Purchases as Non-Genuine:
The Assessing Officer (AO) treated purchases amounting to ?8,54,724 and ?3,73,907 from M/s. Naman Enterprises and M/s. Bhora Metal Industries as non-genuine for A.Y. 2009-10 and A.Y. 2010-11 respectively. This was based on information received from the Directorate General of Income Tax (Investigation), Mumbai, indicating that the assessee had received accommodation entries without making actual purchases but instead made purchases only in the gray market. The AO concluded this as the assessee could not produce the parties or establish the movement of goods.

3. Estimation of Profit Element from Non-Genuine Purchases:
The AO estimated the profit element from the non-genuine purchases at 25% and brought to tax amounts of ?2,13,681 and ?93,477 for A.Y. 2009-10 and A.Y. 2010-11 respectively. The assessee accepted this estimation and did not prefer an appeal against it. However, the AO initiated penalty proceedings and levied penalties of ?89,541 and ?29,812 for the respective assessment years under Section 271(1)(c), claiming that the assessee furnished inaccurate particulars of income and concealed income.

4. Applicability of Penalty When Income is Determined by Ad Hoc Estimation:
The Tribunal observed that it is a settled position of law that penalty cannot be levied when an ad hoc estimation 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 when the profit element is determined by way of ad hoc estimation. The Tribunal also cited the case of DCIT v. Manohar Manak, Alloys Pvt. Ltd., where it was held that penalty cannot be imposed when additions are made on an estimated basis without concrete evidence of bogus purchases.

Further, the Tribunal referenced the Hon'ble Punjab & Haryana High Court's decision in Harigopal Singh v. CIT, which held that penalty provisions under Section 271(1)(c) are not attracted when income is assessed on an estimate basis and additions are made on that basis. The Hon'ble Delhi High Court in CIT v. Aero Traders Pvt. Ltd. also affirmed that estimated rates of profit applied on the turnover do not amount to concealment or furnishing inaccurate particulars.

In conclusion, the Tribunal found no conclusive proof of concealment of income or furnishing inaccurate particulars by the assessee. The orders of the CIT(A) in deleting the penalty were upheld, and the appeals of the revenue were dismissed.

Final Judgment:
The appeals of the revenue were dismissed, and the order pronounced on 05.03.2021 confirmed the deletion of the penalties levied under Section 271(1)(c) of the Income Tax Act.

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