2021 (6) TMI 284 - AT - Income Tax

Penalty levied u/s 271(1)(c) - bogus purchases - estimation of the income/Gross Profit @15% - A.O has made disallowance of bogus purchases, whereas, on appeal CIT(A) has estimated the income/Gross Profit @15% - HELD THAT - We are of the opinion, that where the addition is sustained on the estimated basis no penalty u/s 271(1)(c) of the Act can be levied. Accordingly, we considering the facts, circumstances and judicial decisions set aside the order of the CIT(A) and direct the assessing officer to delete the penalty and allow the grounds of appeal of the assessee.

Issues involved:
1. Appeal against order of Commissioner of Income Tax (Appeals) -21 Mumbai under sections 271(1)(c) and 250 of the Income Tax Act, 1961.
2. Levy of penalty under section 271(1)(c) for adhoc disallowance of expenses.
3. Confirmation of penalty proceedings without specific charge by the Assessing Officer.
4. Imposition of penalty based on estimated income/gross profit.
5. Appellant's appeal against penalty order upheld by Commissioner of Income Tax (Appeals) and subsequent appeal to the Tribunal.

Analysis:

1. The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) -21 Mumbai, challenging the penalty levied under sections 271(1)(c) and 250 of the Income Tax Act, 1961. The grounds of appeal raised by the assessee primarily questioned the correctness of the penalty imposed by the Assessing Officer, citing errors in the reasons assigned for the penalty and contending that the provisions of the IT Act and related rules were not adhered to.

2. The brief facts of the case outlined the assessee's engagement in manufacturing fluid sealing products and the filing of income tax returns for the assessment year 2011-12. Subsequently, the Assessing Officer received information regarding alleged bogus purchase transactions by the assessee, leading to additions and disallowances in the total income assessed. Penalty proceedings under section 271(1)(c) were initiated by the Assessing Officer, resulting in the imposition of a penalty, which was further contested by the assessee before the Commissioner of Income Tax (Appeals).

3. The penalty imposition was challenged on the grounds that no specific charge was made by the Assessing Officer for the penalty, questioning the initiation of penalty proceedings without clarity on whether it was for concealing income particulars or furnishing inaccurate information. The appellate tribunal emphasized the importance of specific charges in penalty proceedings and noted the lack of detailed grounds or factual submissions during the penalty proceedings.

4. The core issue revolved around the levy of penalty under section 271(1)(c) based on the estimated income or gross profit adjustments made by the Assessing Officer. The Commissioner of Income Tax (Appeals) had confirmed the penalty, but the tribunal, after considering judicial decisions and the circumstances of the case, held that when additions are sustained on an estimated basis, penalty under section 271(1)(c) cannot be justified. Consequently, the tribunal directed the assessing officer to delete the penalty and allowed the grounds of appeal raised by the assessee.

5. The tribunal's decision to allow the appeal filed by the assessee against the penalty order signified a successful challenge to the penalty imposed under section 271(1)(c). The order pronounced on 04.06.2021 reflected the tribunal's decision to set aside the Commissioner of Income Tax (Appeals) order and direct the assessing officer to delete the penalty, thereby ruling in favor of the assessee in this case.

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