2024 (10) TMI 244 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - Estimation of income - bogus purchases - on the estimated addition @12.5% made by the AO, on appeal the CIT(A) has directed the AO to calculate profit @ 8% - HELD THAT - We find the A.O has made adhoc disallowance of bogus purchases on estimation of income but has accepted the sales in the books of accounts. 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 the ratio of the 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 in favour of the assessee.

Issues:
1. Levy of penalty under section 271(1)(c) for furnishing inaccurate particulars of income.
2. Initiation of penalty for concealment of income and furnishing inaccurate particulars.
3. Passing of penalty order after the expiry of the time limit.
4. Appeal against the penalty order.

Analysis:

Issue 1: Levy of penalty under section 271(1)(c) for furnishing inaccurate particulars of income
The appeal was filed against the order of National Faceless Appeal Centre (NFAC) upholding the penalty under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer (A.O) had initiated penalty proceedings based on information regarding bogus purchase transactions. The A.O estimated a profit element on non-genuine purchases and passed an order under section 143(3) r.w.s 147 of the Act. Subsequently, penalty proceedings were initiated under section 271(1)(c) by the A.O. The appellant contended that no penalty can be levied on estimated income. The Tribunal held that where additions are made on an estimated basis, penalty under section 271(1)(c) cannot be imposed. Consequently, the Tribunal set aside the order of the CIT(A) and directed the A.O to delete the penalty, ruling in favor of the assessee.

Issue 2: Initiation of penalty for concealment of income and furnishing inaccurate particulars
The A.O had initiated penalty proceedings under section 271(1)(c) for both concealment of income and furnishing inaccurate particulars. The appellant argued that the penalty order was bad in law as the A.O had initiated proceedings for both concealment and inaccurate particulars. However, the Tribunal focused on the fact that the penalty was based on estimated additions and concluded that no penalty could be imposed in such circumstances. The Tribunal's decision to delete the penalty was based on the legal principle that penalties under section 271(1)(c) cannot be levied on estimated income.

Issue 3: Passing of penalty order after the expiry of the time limit
One of the grounds of appeal was that the penalty order was passed after the expiry of the time limit prescribed under section 275 of the Act, rendering the order null and void. However, the Tribunal did not delve into this issue specifically in its analysis. The decision primarily revolved around the legality of imposing penalties on estimated income and the subsequent deletion of the penalty by the Tribunal.

Issue 4: Appeal against the penalty order
The assessee had appealed against the penalty order to the CIT(A), who confirmed the A.O's decision to levy the penalty. Subsequently, the assessee filed an appeal with the Tribunal challenging the CIT(A)'s order. During the Tribunal hearing, the appellant argued against the levy of penalty on estimated income and presented judicial decisions to support their case. The Tribunal ultimately allowed the appeal, setting aside the penalty and ruling in favor of the assessee.

In conclusion, the Tribunal's judgment focused on the legal principle that penalties under section 271(1)(c) cannot be imposed on estimated income. The Tribunal set aside the penalty imposed by the A.O and directed the deletion of the penalty, ultimately allowing the appeal filed by the assessee.

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