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

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ITA 1139/MUM/2023Status: DisposedITAT Mumbai28 June 2023AY 2011-124 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that penalty under Section 271(1)(c) cannot be levied on additions made purely on estimations. This is supported by various High Court and Tribunal decisions.

What were the facts?

The assessee's assessment for AY 2011-12 was reopened due to alleged bogus purchase bills, leading to additions based on estimations. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act.

What were the issues?

Whether penalty under Section 271(1)(c) is sustainable when additions are made solely on estimations. Whether the assessee had concealed income or furnished inaccurate particulars.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 143(3),Section 147

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(4)Show list

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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI

Before: SHRI VIKAS AWASTHY & SHRI GAGAN GOYAL

Hearing: 28/06/2023Pronounced: 28/06/2023

PER VIKAS AWASTHY, JM:

1.

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’].

2.

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.

2.1 The ld. Counsel for the assessee submitted at the outset that no penalty u/s. 271(1)(c) of the Act is sustainable where the addition has been made merely on estimations. In support of her submissions, she placed reliance on the following decisions:

(i) ACIT vs. M/s. Colo Color Pvt. Ltd., A.Y. 2011-12 decided on 31/07/2020. (ii) ACIT vs. Golkunda Diamonds & Jewellery Ltd., ITA No.5507/Mum/2019 A.Y.2009-10 decided 27/07/2021. (iii)M/s. Ramnarain And Company vs. ACIT, ITA No.347/Mum/2023, A.Y. 2010-11 decided on 19/05/2023.

3.

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.

4.

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:-

(i) CIT vs. Krishi Tyre Retreading and Rubber Industries, 360 ITR 580(Raj); (ii) CIT vs. Sangrur Vanaspati Mills Ltd., 303 ITR 53 (P&H; (iii) CIT vs. Subhash Trading Co. Ltd., 221 ITR 110 (Guj); (iv) CIT vs. Aero Traders Pvt. Ltd., 322 ITR 316 (Delhi). The Co-ordinate Bench of the Tribunal in the case of M/s. Ramnarain And Company vs. ACIT (supra), ACIT vs. Golkunda Diamonds & Jewellery Ltd.(supra) and ACIT vs. M/s. Colo Color Pvt. Ltd. by placing reliance on the aforesaid decisions by the Hon’ble High Courts have held that no penalty can be initiated where the addition is made on estimations.

5.

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.

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