2021 (4) TMI 164 - AT - Income Tax

Penalty u/s. 271(1)(c) - Bogus purchases of raw materials(chemicals) - assessee in order to purchase peace, the assessee came forward to offer 5% as its profit margin in these transactions - HELD THAT - CIT(A) had categorically given a finding that the addition had been ultimately made only on an estimated basis by placing reliance on the decision of CIT vs. Aero Traders Pvt. Ltd., 2010 (1) TMI 32 - DELHI HIGH COURT , CIT vs. Vijaykumar Jain 2010 (4) TMI 386 - CHHATTISGARH HIGH COURT , CIT vs. Subhash Trading Co. 1995 (11) TMI 37 - GUJARAT HIGH COURT and MAHENDRA SINGH KHEDLA 2012 (3) TMI 568 - RAJASTHAN HIGH COURT , the ld. CIT(A) held that no penalty u/s. 271(1)(c) of the Act could be levied on an estimated addition and accordingly, deleted the penalty. We do not find any infirmity in the said order of the ld. CIT(A) deleting the penalty on an estimated addition. Accordingly, the ground raised by the Revenue is dismissed.

Summary

Issues:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2011-12.
2. Validity of penalty imposed based on estimated additions.
3. Cross objections regarding the show-cause notice and penalty under section 115JB of the Act.

Analysis:
1. The appeal before the Appellate Tribunal ITAT MUMBAI concerned the imposition of a penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2011-12. The assessee, engaged in manufacturing agro chemicals and pharmaceutical intermediaries, had declared a business loss and book profit. The dispute arose from transactions involving purchases of raw materials and subsequent sales, leading to a declared profit margin for tax purposes. The Assessing Officer (AO) had levied a penalty under section 271(1)(c) based on the taxed sum, which was challenged before the Tribunal.

2. The Tribunal analyzed the facts and found that the penalty was imposed on an estimated basis, as the addition to income was made without precise calculation but rather on a presumptive basis. The ld. Commissioner of Income Tax (Appeals) had relied on various judicial decisions to conclude that penalties under section 271(1)(c) cannot be levied on estimated additions. Citing precedents from different High Courts, the Tribunal upheld the decision of the Commissioner to delete the penalty, emphasizing that penalties should not be imposed on speculative or estimated amounts.

3. Additionally, the Tribunal addressed cross objections raised by the assessee regarding the show-cause notice and the applicability of penalties under section 271(1)(c) in cases assessed under section 115JB of the Act. Despite dismissing the Revenue's appeal, the Tribunal found it unnecessary to delve into these additional grounds raised by the assessee, deeming them academic in light of the main issue. Consequently, the cross objections were dismissed as infructuous, and the Tribunal upheld the decision to delete the penalty based on estimated additions.

In conclusion, the Appellate Tribunal ITAT MUMBAI ruled in favor of the assessee, dismissing the appeal of the Revenue and upholding the decision to delete the penalty imposed under section 271(1)(c) for the assessment year 2011-12. The Tribunal's detailed analysis highlighted the importance of precise calculations in tax assessments and reiterated that penalties should not be levied on speculative or estimated amounts, in line with established legal principles and precedents.