H K INDUSTRIES,MUMBAI vs. ITO-34(2)(1) CURRENT JURIDICTION, MUMBAI

O R D E R PER : MS PADMAVATHY S. (AM) This appeal is against the order of the Commissioner of Income-tax (Appeals)(National Faceless Appeal Centre)(in short, „the CIT(A)‟) dated 02/02/2023 for A.Y. 2009-10. The assessee raised the following grounds of appeal:- “1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming penalty of Rs. 197248 on basis of invalid notice under section 274 r.w.s. 271(l)(c) of Income Tax Act, 1961.

2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming penalty of Rs. 197248 under section 271(l)(c) of Income Tax Act, 1961.

2 ITA 1109/Mum/2023 H.K. Industries 3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in not adjudicating the grounds of appeal on merit.”

2. The assessee is a partnership firm and filed a return of income for A.Y. 2009-10 on 30/09/2009 declaring an income of Rs.2,32,053/-. Based on the information received from Sales-tax Department through the DGIT(Inv), Mumbai, the assessee‟s case was reopened and assessment order under section 143(3) read with section 147 was completed vide order dated 26/03/2015 assessing the income at Rs.8,70,394/-. The Assessing Officer, in the re-assessment order made an addition of Rs.6,38,341/- on account of bogus purchases by applying GP rate of 12.5% on the overall cost of purchases of Rs.51,06,734/-. The assessee did not file further appeal against the order of assessment passed under section 143(3) read with section 147. The Assessing Officer subsequently initiated penalty proceedings under section 271(1)(c) by issuing notice under section 274 read with section 271(1)(c). The assessee, in response, submitted before the Assessing Officer that to buy peace and to avoid prolonged litigation and to co-operate with the department, the assessee has accepted the tax liability as per the re-assessment order and, therefore, the levy of penalty was not warranted. The Assessing Officer did not accept the submissions of the assessee and proceeded to levy a penalty of Rs.1,97,248/- being 100% of tax on the addition made. Aggrieved, the assessee filed appeal before the CIT(A). The CIT(A) upheld the order of the Assessing Officer for the reason that none appeared before him in spite of granting several opportunities and based on materials available on record. Aggrieved, the assessee filed appeal before the Tribunal.

3. There is a delay of two days in filing the appeal. The Ld.AR submitted that the appeal was sent through „speed post‟ and delay has caused due to postal delay 3 ITA 1109/Mum/2023 H.K. Industries and accordingly prayed for condonation. Considering the facts submitted, we condone the delay and admit the appeal for further adjudication.

4 ITA 1109/Mum/2023 H.K. Industries 10. The Hon'ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries reported as 360 ITR 580 has held that where addition is made purely on estimate basis, no penalty u/s. 271(l)(c) of the Act is leviable. Similar view has been expressed by Ho'ble Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. reported as 303 ITR 53. The Hon'ble High Court approving the order of Tribunal held that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty u/s. 271(l)(c) of the Act is not leviable. The Hon'ble Gujarat High Court in the case of CIT vs. Subhash Trading Co. Ltd. reported as 221 ITR 110 has taken a similar view in respect of penalty levied u/s. 271(l)(c) of the Act on estimated additions. There are catena of decisions by different High Courts and various Benches of the Tribunal wherein penalty levied u/s. 271(l)(c) of the Act on estimated addition has been held to be unsustainable.