2021 (2) TMI 1014 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - Bogus purchases - information received from DGIT (Inv.,), Mumbai that assessee has received accommodation entries from M/s. Vitraj Traders Impex without making any purchases but made purchases only in grey market - AO estimated the profit element from non-genuine purchases at 12.5% - HELD THAT - It is a settled position of law that penalty cannot be levied when an adhoc estimation is made. In this case an adhoc estimation was made by the Assessing Officer restricting the profit element in the purchases @12.5%. See SHRI DEEPAK GOGRI VERSUS THE INCOME TAX OFFICER, WARD 25 (3) (2) , MUMBAI 2017 (11) TMI 1857 - ITAT MUMBAI As decided in AERO TRADERS (P) LTD. 2010 (1) TMI 32 - DELHI HIGH COURT estimated rate of profit applied on the turnover of the assessee does not amount to concealment or furnishing inaccurate particulars. In the case on hand the 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 order 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 Year. Grounds raised by the revenue are rejected.

Summary

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Treatment of non-genuine purchases and estimation of profit element.
3. Legal principles regarding penalty on estimated income.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:
The Revenue appealed against the order of the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], which deleted the penalty levied under Section 271(1)(c) of the Income Tax Act by the Assessing Officer (AO). The AO had imposed a penalty of ?47,000, asserting that the assessee furnished inaccurate particulars and concealed income. The Ld.CIT(A) deleted the penalty on the grounds that the disallowance was based on an estimation of Gross Profit on purchases.

2. Treatment of Non-Genuine Purchases and Estimation of Profit Element:
The assessee, engaged in executing electrical contracts, filed a return declaring an income of ?9,16,510 for the A.Y. 2011-12. The assessment was reopened under Section 147, and the AO completed the reassessment, determining the income at ?10,51,910. The AO treated purchases of ?1,25,374 from M/s. Vitraj Traders Impex as non-genuine based on information from the DGIT (Investigation), Mumbai, indicating that the assessee received accommodation entries without actual purchases. The AO estimated the profit element from these non-genuine purchases at 12.5% and brought to tax ?1,25,374 out of purchases of ?10,02,988. The assessee accepted this estimation and did not appeal further.

3. Legal Principles Regarding Penalty on Estimated Income:
The tribunal noted that it is a settled position of law that penalty cannot be levied when an adhoc estimation is made. The AO's estimation of the profit element at 12.5% was deemed adhoc. The tribunal referenced similar cases, such as Shri Deepak Gogri v. Income Tax Officer and DCIT v. Manohar Manak, Alloys Pvt. Ltd., where penalties were not levied on estimated profits. In these cases, it was held that there was no concealment of income or furnishing of inaccurate particulars when the profit element was determined by estimation. The tribunal also cited the Hon'ble Punjab & Haryana High Court in Harigopal Singh v. CIT, which held that penalty provisions under Section 271(1)(c) are not attracted when income is assessed on an estimate basis. The Hon'ble Delhi High Court in CIT v. Aero Traders Pvt. Ltd. affirmed that estimated profit on turnover does not amount to concealment or furnishing inaccurate particulars.

Conclusion:
The tribunal upheld the Ld.CIT(A)'s order, concluding that the AO's estimation of Gross Profit on alleged non-genuine purchases did not constitute conclusive proof of concealment or furnishing inaccurate particulars. Thus, the penalty under Section 271(1)(c) was not justified, and the appeal of the revenue was dismissed. The order was pronounced in the virtual court on 11.02.2021.