2024 (6) TMI 643 - AT - Income Tax

Penalty u/s 271(1)(c) on estimated additions - income is generated out of the bogus purchases from hawala dealers and profit of the assessee was estimated - HELD THAT - The assessee failed to produce the level of details which ld. AO wanted assessee to produce. On these facts the learned Assessing Officer estimated the income of the assessee by estimating the profit involved in these bogus purchases transaction at the rate of 9% which was restricted by the learned CIT (A) to 5%. Thus it is not the case of any information furnished by the assessee found to be inaccurate but it is a failure of the assessee to substantiate the documents to the extent desired by the learned Assessing Officer. It is also the fact that notices under Section 133(6) of the Act were issued to the various hawala dealers which could not have been served and returned. However that could have been the reasons for making addition but could not be reason to held that assessee has furnished inaccurate particulars of income. The orders in case of Stripco Springs Pvt. Ltd. 2021 (9) TMI 678 - ITAT MUMBAI V.K. Ispat Alloys 2023 (2) TMI 1058 - ITAT MUMBAI are also in favour of the assessee as those are on identical facts and circumstances holding that where addition of income of the assessee is on estimated percentages of bogus purchases no penalty u/s 271(1) (c) of the Act can be sustained on such addition. Decided in favour of assessee. Validity of low tax effect appeals by the Revenue - Penalty orders are adverse judgments relating to issues of the proceedings where addition is based on information from specified authority. Therefore revenue could file an appeal on the issues of addition as well as penalty or any other issue related to additions made based on specified information from specified agencies. Hence we reject the argument of the ld. AR that these are low tax effect appeals which could not have been preferred by the ld. AO.

Summary

Issues Involved:
1. Sustainability of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961, on estimated additions due to bogus purchases.
2. Consistency in penalty proceedings across different assessment years.
3. Applicability of judicial precedents on the imposition of penalties based on estimated additions.
4. Relevance of low tax effect appeals in penalty proceedings.

Detailed Analysis:

1. Sustainability of Penalty Levied Under Section 271(1)(c):
The primary issue revolves around whether the penalty levied under Section 271(1)(c) for furnishing inaccurate particulars of income is sustainable when the additions are made on an estimated basis due to bogus purchases. The learned CIT (A) had deleted the penalties, holding that additions made on an estimated basis do not justify the imposition of penalties. This view was supported by several judicial precedents, including decisions by co-ordinate Benches and High Courts, which established that penalties under Section 271(1)(c) cannot be sustained on estimated additions.

2. Consistency in Penalty Proceedings:
The assessee argued that for A.Y. 2009-10, the penalty proceedings under similar circumstances were dropped by the learned Assessing Officer, and there was no change in facts or law for the subsequent years (A.Y. 2010-11 and 2011-12). The principle of consistency was emphasized, noting that the same facts should lead to the same conclusion regarding the imposition of penalties.

3. Applicability of Judicial Precedents:
The learned Authorized Representative cited several judicial precedents to support the argument that penalties on estimated additions are not sustainable. Notably, the decisions in the cases of Stripco Springs Pvt. Ltd. and V.K. Ispat & Alloys were highlighted, where penalties were deleted on similar grounds. Additionally, the High Courts' rulings in Rameshchandra A Shah and Vijay Proteins Ltd. further reinforced that penalties cannot be imposed on income additions made purely on estimates.

4. Relevance of Low Tax Effect Appeals:
The learned Authorized Representative raised an additional issue that the penalty appeals were below the requisite monetary limit and should not have been preferred by the learned Assessing Officer. However, the learned Departmental Representative countered that penalty orders arising from quantum additions based on information from specified authorities are exceptions to the low tax effect rule. The Tribunal held that such appeals are permissible under the CBDT Circular, which includes penalty orders in the scope of appeals based on information from specified agencies.

Conclusion:
The Tribunal, after considering the rival contentions and judicial precedents, upheld the appellate orders of the learned CIT (A), confirming that penalties under Section 271(1)(c) are not sustainable when based on estimated additions. The Tribunal also addressed the issue of low tax effect appeals, affirming that such appeals are valid when based on information from specified authorities. Consequently, the appeals of the learned Assessing Officer for both assessment years were dismissed.