2019 (10) TMI 989 - AT - Income Tax

Addition on account of unverifiable purchases - CIT-A deleted the addition - HELD THAT - After considering the orders of the A.O. and submission of the assessee, the ld. CIT(A) has directed to compute the income on the basis of 0.25% on total turnover and no benefit of any expenditure would be allowed. Assessee has relied in the case of Arman Fashion Pvt. Ltd. v. ITO Ward 1(1) Surat 2013 (6) TMI 543 - ITAT AHMEDABAD wherein net profit was estimated at 0.5% of turnover. Special Bench in the case of Manoj Agarwal v. DCIT 2008 (7) TMI 446 - ITAT DELHI-A has estimated commission income at 0.50% for giving accommodation entries by holding the CIT (A) was justified in estimating net commission at 0.355 after allowing 0.15% for expenses. Therefore, we find that the issue is covered in favour of the assessee hence, following same we are not inclined to interfere with the order of Ld. CIT (A) hence, same is upheld. This ground is dismissed. Addition of undisclosed income from interest - HELD THAT - We find that the interest received was duly reflected in the books of accounts of Arpit Jewels (a sister concern of the assessee) which has been duly verified by the Ld. CIT (A). In view of this matter, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. This ground of appeal is therefore, dismissed. Penalty levied u/s 271(1)(c) - HELD THAT - As decided in FORTUNE TECHNOCOMPS (P) LTD. 2016 (5) TMI 859 - DELHI HIGH COURT Once the assessment order of the AO in the quantum proceedings was altered by the CIT(A) in a significant way, the very basis of initiation of the penalty proceedings was rendered non-existent. The AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also, the Court concurs with the CIT(A) and the ITAT that once the finding of the AO on bogus purchases was set aside, it could not be said that there was any concealment of facts or furnishing of inaccurate particulars by the Assessee that warranted the imposition of penalty under Section 271(1)(c) of the Act. We find that the addition was made and income was estimated. Therefore, we are of the view that the penalty cannot be levied. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition on account of unverifiable purchases.
2. Deletion of addition of undisclosed income from interest.
3. Confirmation of penalty levied under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unverifiable Purchases:
The Revenue challenged the deletion of ?2,70,40,363/- made by the AO due to unverifiable purchases. The AO's disallowance was based on information from the DDIT (Inv.) Mumbai regarding suspicious transactions and statements from a proprietor of the involved parties. The CIT (A) acknowledged that the assessee provided necessary documentation to support the purchases but doubted the genuineness due to the seller's admission of providing accommodation entries. Consequently, the CIT (A) estimated the income from such transactions at 0.25%, reducing the addition to ?2,70,403/-. The Tribunal upheld this decision, noting consistency with previous rulings where similar estimations were applied, such as in the case of Shri Dineshkumar Chandanmal Jain and Arman Fashion Pvt. Ltd. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the CIT (A)'s approach.

2. Deletion of Addition of Undisclosed Income from Interest:
The AO added ?3,95,644/- as undisclosed interest income based on AIR information, which the assessee contested, explaining that the interest was accounted for in the books of Arpit Jewels, a sister concern, due to a PAN error. The CIT (A) accepted this explanation, noting the documentation provided, and deleted the addition. The Tribunal, finding no contrary evidence from the Revenue, upheld the CIT (A)'s decision, confirming that the interest income was correctly reflected in Arpit Jewels' accounts.

3. Confirmation of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:
The assessee contested the penalty of ?91,017/- levied for furnishing inaccurate particulars of income. The AO initially assessed the income at ?2,81,88,438/- based on unverifiable purchases and undisclosed interest, but the CIT (A) reduced the addition to ?2,70,403/- and deleted the interest addition. The CIT (A) confirmed the penalty, deeming it concealment of income. The Tribunal, however, noted that the addition was based on an estimation of income, which does not conclusively prove concealment or furnishing of inaccurate particulars. Relying on judicial precedents, the Tribunal held that penalties cannot be levied on estimated additions. Thus, the Tribunal directed the deletion of the penalty, allowing the assessee's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal regarding unverifiable purchases and undisclosed interest income, upholding the CIT (A)'s decisions. It allowed the assessee's appeal, directing the deletion of the penalty levied under section 271(1)(c) of the Income Tax Act. The order was pronounced in the open court on 04.10.2019.