2021 (9) TMI 761 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - estimated addition made on account of bogus purchases - HELD THAT - Addition towards bogus purchases has been made only on estimated basis. Hence, no penalty u/s.271(1)(c) on the same would survive in the eyes of law. Moreover, we find that for the A.Y.2009-10, the gross profit shown by the assessee on total transactions is 29.70% which is much more than 12.5% profit estimated by the Tribunal in the quantum proceedings. We find that the Tribunal has directed the ld. AO to adopt 12.5% less gross profit already declared by the assessee, then there would be no addition that could be effectively survive in the transaction. Hence, we hold that it is not a fit case for levy of concealment penalty u/s.271(1)(c) of the Act. Accordingly, the penalty is hereby directed to be deleted for the A.Y.2009-10. As far as the A.Y.2011-12 is concerned, we find that the GP rate already declared by the assessee is 28.3% which is also much more than the percentage directed by the Tribunal to be added. Hence, we hold that it is not a fit case for levy of concealment penalty u/s.271(1)(c) of the Act. Accordingly, the penalty is hereby directed to be deleted for A.Y.2011-12. Appeals of the assessee are allowed.

Summary

Issues:
Levy of penalty u/s.271(1)(c) of the Income Tax Act, 1961 in relation to estimated addition made on account of bogus purchases.

Analysis:
In the present case, the appeals before the ITAT Mumbai pertained to the imposition of penalty u/s.271(1)(c) of the Income Tax Act, 1961, for A.Yrs. 2009-10 & 2011-12. The primary issue to be decided was whether the ld. CIT(A) was justified in confirming the penalty in respect of estimated addition made on account of bogus purchases. The Tribunal considered both appeals together due to identical issues involved.

For the A.Y. 2009-10, the assessee had filed the return of income declaring total income of ?4,32,63,690. The assessment was framed determining total income at ?5,38,92,820, with a disallowance on account of bogus purchases. The Tribunal had earlier restricted the disallowance to 12.5% of bogus purchases after considering the profit element. The Tribunal noted that the addition was made on an estimated basis and held that no penalty u/s.271(1)(c) would be justified. The Tribunal also observed that the gross profit declared by the assessee was higher than the estimated profit, leading to the deletion of the penalty for A.Y. 2009-10.

Regarding A.Y. 2011-12, the Tribunal found that the gross profit rate declared by the assessee was also higher than the percentage directed by the Tribunal. Consequently, the Tribunal concluded that it was not a suitable case for the imposition of the penalty u/s.271(1)(c) for this assessment year as well. Therefore, the penalty for A.Y. 2011-12 was also directed to be deleted.

In conclusion, the Tribunal allowed both appeals of the assessee, emphasizing that the penalties under section 271(1)(c) were not warranted in the circumstances of the case for both A.Y. 2009-10 and A.Y. 2011-12. The order was pronounced on 13/09/2021, and the penalties were directed to be deleted for both assessment years.