2021 (7) TMI 7 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - Estimation of income on bogus purchases - .CIT(A) deleted the penalty since the disallowance was made by making estimation of Gross Profit on the purchases - HELD THAT - It is a settled position of law that penalty cannot be levied when an adhoc estimation is made. Inboth these cases an adhoc estimation was made by the Assessing Officer restricting the profit element in the purchases @10% and the Ld.CIT(A) scaled down the percentage of profit element in such purchases to 5%. See SHRI DEEPAK POPATLAL GALA OTHERS 2015 (6) TMI 944 - ITAT MUMBAI . 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 orders 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 Years under consideration - Decided in favour of assessee.

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Estimation of profit element on non-genuine purchases.
3. Applicability of CBDT Circular No. 17/2019 regarding low tax effect.

Issue-Wise Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:
The appeals were filed by the revenue against the orders of the Commissioner of Income-tax (Appeals) [CIT(A)] which deleted the penalty levied under Section 271(1)(c) of the Income Tax Act. The Assessing Officer (AO) had initiated penalty proceedings and levied penalties of ?4,00,000/- and ?2,50,000/- for the assessment years (A.Y.) 2009-10 and 2010-11 respectively, on the grounds that the assessee furnished inaccurate particulars of income and concealed income. However, the CIT(A) deleted the penalties as the disallowance was based on an estimation of Gross Profit on the alleged non-genuine purchases.

2. Estimation of Profit Element on Non-Genuine Purchases:
The assessee, engaged in the business of fabrication and dealing in engineering goods, had filed returns which were later reassessed. The AO treated certain purchases as non-genuine based on information from DGIT (Inv.), Mumbai, and estimated the profit element from these non-genuine purchases at 10%. The CIT(A) later scaled this down to 5%. The tribunal noted that it is a settled position of law that penalty cannot be levied when an ad-hoc estimation is made. The tribunal referenced similar cases where it was held that there is no concealment of income or furnishing of inaccurate particulars when the profit element is determined by way of ad-hoc estimation.

3. Applicability of CBDT Circular No. 17/2019 Regarding Low Tax Effect:
The tribunal observed that the tax effect in these appeals was ?4,00,000/- and ?2,50,000/- for the A.Y. 2009-10 and 2010-11 respectively, which is less than ?50 Lakhs. As per CBDT Circular No. 17/2019, appeals with tax effects below ?50 Lakhs are not maintainable. The revenue argued that this case falls under exceptions provided under clause 10(e) of the circular, which applies when additions are made based on information received from "external sources." However, the tribunal noted that the information was received from DGIT (Inv.), Mumbai, which is an internal agency of the revenue department and not an external source. Moreover, the modified instructions apply to assessment proceedings and not to penalty proceedings.

Conclusion:
The tribunal upheld the orders of the CIT(A) deleting the penalties as the additions were based on ad-hoc estimations and not on concrete evidence of concealment or furnishing inaccurate particulars. Additionally, the appeals were dismissed due to the low tax effect, as per CBDT Circular No. 17/2019. The tribunal concluded that the revenue's grounds for appeal were not maintainable, and the appeals were dismissed.

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