2024 (11) TMI 431 - AT - Income Tax

Penalty u/s 271(1)(c) - Estimation of income - bogus purchases - HELD THAT - CIT(A) has specifically mentioned that the Tribunal, in quantum appeal, has restricted the addition to 12.5% of bogus purchases. CIT(A) has treated the bogus purchase amount debited by the assessee in its P L Account as concealment of particular of income. CIT(A) has failed to appreciate the core spirit of the Tribunal s order that the restriction is based merely on the estimation basis only. Hence, we hold that the penalty levied u/s. 271(1)(C) of the Act is unsustainable under law. The aforesaid point is accordingly determined in favour of the assessee and against the revenue.

Summary

Issues:
Appeal against penalty order under section 271(1)(C) of the Income-Tax Act, 1961 based on estimation of income.

Detailed Analysis:
The appeal was filed against the penalty order dated 27.03.2018 passed under section 271(1)(C) of the Income-Tax Act, 1961 for the Assessment Year 2010-11. The penalty was confirmed by the Commissioner of Income-tax (Appeals) based on the addition of Rs. 84,18,995/- as bogus purchases made by the assessee. The appellant argued that the addition was made on an estimation basis, and therefore, the penalty should not be levied solely on that basis.

The key issue for determination was whether the penalty levied under section 271(1)(C) of the Act was sustainable under the law. The appellant contended that penalties cannot be imposed solely based on estimation of income, citing relevant case laws to support the argument. The appellant referred to various judgments, including one by the Rajasthan High Court, to emphasize that penalties should not be levied when additions are made purely on an estimated basis without concrete evidence of concealment.

The Tribunal examined the precedents cited by the appellant and noted that penalties on estimated additions have been consistently held to be unsustainable in various judicial decisions. The Tribunal specifically referenced a case where the penalty was not attracted when the addition was made on an estimate basis without concrete evidence of concealment. The Tribunal found that the penalty in this case was unsustainable as it was based on the estimation of bogus purchases without establishing concealment of income by the assessee.

Ultimately, the Tribunal held in favor of the assessee, concluding that the penalty levied under section 271(1)(C) of the Act was unsustainable under the law. The Tribunal directed the assessing officer to delete the penalty. As a result, the appeal was allowed, and both the impugned order dated 25.01.2024 and the penalty order dated 27.03.2018 were set aside.

In conclusion, the Tribunal's decision emphasized the principle that penalties should not be imposed solely on estimated additions without concrete evidence of concealment of income by the assessee. The judgment provided a detailed analysis of relevant case laws and established that penalties based on estimation alone are not sustainable under the law.