M/S. METAL TRADERS ,MUMBAI vs. ITO-WARD 33(2)(3), MUMBAI

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [ in short ‘the CIT(A)’] dated 06/02/2023, for the Assessment Year 2011-12 confirming levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 [ in short ‘the Act’].

Ms. Dinkle Haria appearing on behalf of the assessee submitted that assessment for assessment year 2011-12 in the case of assessee was reopened on the ground that the assessee has indulged in obtaining bogus purchase bills. The Assessing Officer vide assessment order dated 24/11/2016 passed u/s. 143(3) r.w.s. 147 of the Act made addition by estimating suppressed undisclosed profit of 12.5% on alleged bogus purchases. The Assessing Officer also initiated penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income and concealment of income. Aggrieved by the assessment order, the assessee filed appeal before the CIT(A) . The CIT(A) restricted the addition to 6% of the total alleged bogus purchases . The order of CIT(A) restricting addition to 6% was again on mere estimations. The Assessing Officer vide order dated 05/03/2019 levied penalty of Rs.75,151/- i.e. to the extent of 100% of tax sought to be evaded. The assessee carried the issue in appeal before the CIT(A). The appeal of the assessee was dismissed by the CIT(A) for non-prosecution.

Per contra, Ms. Mahita Nair representing the Department submitted that the CIT(A) has upheld the findings of Assessing Officer that the assessee has indulged in obtaining bogus purchase bills from hawala dealers. Thus, it is a clear case of suppression of profits by way of furnishing inaccurate particulars of income and concealment.

We have heard the submissions made by both sides and have examined the orders of authorities below. We have considered the decisions on which ld. Counsel for the assessee has placed reliance. From perusal of the assessment order it is evident that addition on account of alleged bogus purchases has been made solely on estimations. The Assessing Officer has estimated suppression of profits on bogus purchases at 12.5%, in first appellate proceedings the CIT(A) restricted it to 6%. It is an accepted legal position that penalty u/s. 271(1)(c) of the Act can not be levied on estimated addition. This view has been upheld by different Hon’ble High Courts. Some of the decisions, wherein penalty u/s. 271(1)(c) of the Act levied on estimated additions has held to be unsustainable are as under:-

Thus, in light of the fact of the case and the decision discussed above, we quash the impugned order and allow the appeal of assessee.