2024 (8) TMI 172 - AT - Income Tax

Levy penalty u/s 271(1)(c) - Estimation of income on Bogus purchases - profit element embedded in the bogus purchases was estimated by CIT @ 10% as against 25% made by AO - CIT(A) deleted penalty levy - HELD THAT - We consider that addition in the case of the assessee was purely made on estimated basis since the corresponding sales against the purchases was not disputed by the assessing officer. CIT(A) has deleted the penalty after following the decision of Fancy Diamond (I) Ltd. 2023 (6) TMI 1370 - ITAT MUMBAI wherein held that penalty is not leviable in respect of addition made on estimated basis. We have also considered the other decision in the case of Bhuraram V. Choudhury 2024 (8) TMI 79 - ITAT MUMBAI wherein after following the decision of ITAT, Mumbai in the case of Jatin Enterprise 2024 (3) TMI 1073 - ITAT MUMBAI on the proposition that penalty levied in the case of assessee on estimated addition is not sustainable. No error in the decision of ld. CIT(A) in deleting the impugned penalty levied on estimated basis in the case of the assessee. Therefore, all the grounds of appeal of the Revenue are dismissed.

Summary

Issues:
1. Whether the penalty levied under section 271(1)(c) for furnishing inaccurate particulars of income is justified.
2. Whether the addition made on an estimated basis by the assessing officer warrants the imposition of a penalty.
3. Whether the decision of the ld. CIT(A) in deleting the penalty is sustainable.

Analysis:
1. The appeal by the revenue was against the order of the ld. Commissioner of Income-tax, Appeals, NFAC, Delhi, challenging the deletion of a penalty of Rs. 13,50,147 imposed under section 271(1)(c) for inaccurate particulars of income. The assessing officer disallowed 25% of total purchases as alleged bogus purchases, adding it to the total income of the assessee. The penalty was imposed based on the estimation that the purchase parties were non-existent, and the assessee failed to produce them during assessment proceedings.

2. The ld. CIT(A) allowed the assessee's appeal, citing a decision of ITAT, Mumbai, stating that penalties are not leviable for additions made on an estimation basis. The assessing officer's estimation of profit from alleged bogus purchases was reduced by the ld. CIT(A) to 10% from the original 25%. The revenue's appeal against this quantum addition was dismissed by ITAT, Mumbai, upholding the reduced estimation.

3. During the ITAT proceedings, the revenue argued in favor of upholding the penalty, while the assessee presented the ITAT's decision on the quantum addition. The ITAT noted that the ld. CIT(A) had correctly deleted the penalty, following precedents where penalties on estimated additions were deemed unsustainable. Citing cases like Fancy Diamond (I) Ltd. vs. DCIT and Bhuraram V. Choudhury vs. ITO, the ITAT found no error in the ld. CIT(A)'s decision to delete the penalty levied on an estimated basis. The ITAT upheld the deletion of the penalty, dismissing all grounds of appeal by the revenue.

In conclusion, the ITAT upheld the decision of the ld. CIT(A) in deleting the penalty imposed under section 271(1)(c) on an estimated basis, citing precedents where penalties for such additions were deemed unsustainable.