2023 (10) TMI 440 - AT - Income Tax

Penalty u/s 271(1)(c) - estimation of income - bogus purchases - addition is made in assessee s case as a percentage of bogus purchases i.e. by applying 12.50% towards gross profit on the bogus purchases - main contention of the ld AR is that when profit is arrived at on an estimate basis there cannot be any levy of penalty for concealment of income - HELD THAT - We notice that the coordinate bench in the case of ACIT vs. M/s. Fancy Diamonds India Pvt. Ltd. 2022 (6) TMI 1359 - ITAT MUMBAI which has held that in case where the addition is made on estimated basis, the penalty u/s. 271(1)(c) of the Act is not leviable. Tribunal has relied on the decision of Krishi Tyre Retreading and Rubber Industries 2014 (2) TMI 21 - RAJASTHAN HIGH COURT the decision of the Hon ble Punjab Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. 2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT and Subhash Trading Co. Ltd. 1995 (11) TMI 37 - GUJARAT HIGH COURT on estimated basis, there cannot be any penalty levied. In assessee s case the AO has made the addition by estimating the profit @ 12.50% on alleged bogus purchases for the reason that the assessee has spiked the purchase price in order reduce the profits and the said purchases made by the assessee from hawala parties. The penalty u/s. 271(1)(c) is levied by applying the minimum tax rate on the said estimated profits and therefore the ratio of the above decisions is clearly applicable in assessee s case. We hold that penalty u/s 271(1)(c) of the Act cannot be levied where the addition is made on estimate basis and accordingly the penalty levied is hereby deleted. Appeal of assessee allowed.

Summary

Issues:
The appeal challenges the ex-parte order by Ld. CIT(A), confirmation of penalty by Assessing Officer, and imposition of penalty under section 271(1)(c) for the assessment year 2010-11.

Ex-parte Order:
The appeal raised concerns regarding the ex-parte order passed by Ld. CIT(A) without granting sufficient opportunity to the appellant for being heard. The appellant contended that the order was erroneous both factually and legally. The Tribunal considered the submissions and evidence provided by the appellant in this regard.

Confirmation of Penalty:
The Ld. CIT(A) confirmed the action of the Assessing Officer in levying a penalty under section 271(1)(c) without specifying whether it was for concealment of income or furnishing inaccurate particulars of income. The appellant argued that the penalty was unjustified as the profits were estimated and proper books of account were maintained. The Tribunal analyzed the legal contentions raised by both parties.

Penalty Imposition on Estimate Basis:
The Assessing Officer initiated penalty proceedings under section 271(1)(c) based on an addition made on an estimate basis. The appellant argued that penalty cannot be levied when additions are made on an estimated basis, citing various judicial pronouncements. The Tribunal examined the nature of the addition, the basis for penalty imposition, and relevant legal precedents in detail.

Decision:
After hearing both parties and reviewing the materials on record, the Tribunal found merit in the appellant's argument that penalty under section 271(1)(c) cannot be levied when additions are made on an estimate basis. Citing relevant judicial precedents, the Tribunal concluded that the penalty imposed on the appellant was not justified in this case. Therefore, the penalty levied under section 271(1)(c) was deleted, and the appeal of the assessee was allowed.