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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: AMIT SHUKLA & MS. PADMAVATHY S.
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 (NFAC) [hereinafter ‘Ld.CIT(A)’] dated 11/01/2023 for the assessment year 2010-11. The assessee raised the following grounds of appeal:- “1. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) has erred in passing ex-parte order without granting sufficient opportunity o being heard to the appellant.
2. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) has erred in confirming the action of Leaned Assessing Officer in levying a penalty without specifying the limb whether it is 2 ITA 347/Mum/2023 M/s Ramanarain And Company for concealment of income or furnishing inaccurate particulars of income.
3. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) has erred in confirming the action of the Ld.Assessing Officer in levying a penalty of Rs.2,15,053/- u/s 271(1)(c) for Income Tax Act, 1961, without considering the facts and circumstances of the case.
4. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) has erred in confirming the action of Learned Assessing Officer in levying a penalty of rs.2,15,053/- on the issue of an addition made of rs.7,16,843/- (being 12.50 percent of alleged profit earned on account of Non genuine purchases, without appreciating the fact that penalty is not to be imposed on the issue of addition made on estimate basis.”
2. The assessee is a firm engaged in the business of trading in precious, semi precious stones, synthetic stones and silvery jewellery. The assessee filed a return of income for A.Y. 2010-11 on 17/09/2010 declaring a total income of Rs.36,70,647/-. The return was processed under section 143(1) of the Act. Subsequently, a notice under section 148 was issued reopening the assessment for the reason that the Assessing Officer has received information from DGIT(Inv) about having received vital information from Sales Tax authorities about some of the dealers indulging in the practice of providing accommodation entries in the form of issuing bogus sales bills / bogus invoices without physical supply of goods. The said authorities had also forwarded a list of “Hawala Dealers” and also the list of “Beneficiaries”. According to the Assessing Officer the said list had assessee’s name as a beneficiary and based on the said information, the Assessing Officer issued a notice reopening the assessment of the assessee. The Assessing Officer called on the assessee to furnish confirmation from suppliers and 3 ITA 347/Mum/2023 M/s Ramanarain And Company production of party with regard to the purchases made by the assessee from the following parties:- 1. Somnath International Rs. 5,65,313/- 3. Vidhi & Vrushti Trade Pvt Ltd Rs. 51,69,433/-
3. After verifying the details submitted by the assessee, the Assessing Officer concluded that the purchases from these parties are not genuine for the reason that the assessee has not furnished any documentary evidence to support the purchases. Accordingly the Assessing Officer applied 12.50% towards the rate of profit to make an addition of Rs.7,16,843/- while completing the assessment under section 143(3) read with section 147. Subsequently, the Assessing Officer initiated penalty proceedings under section 271(1)(c) by issuing a show cause notice for the reason that the assessee has furnished inaccurate particulars of income and that the quantum appeal filed by the assessee before the CIT(A) has been dismissed. The assessee submitted that the profits were estimated at 12.5% of the amount attributable to alleged bogus purchases solely based on the information received from the DGIT(Inv). The assessee submitted that it is maintaining proper books of account and that the payments towards purchases are made through normal banking channel. The assessee also raised a legal contention that when the addition is made on an estimate basis, it is settled law that penalty cannot be levied. However, the Assessing Officer did not accept the submissions of the assessee and by relying on various judicial pronouncements, held that the penalty under section 271(1)(c) is leviable on assessee for furnishing inaccurate particulars of income and concealment of income. Accordingly, the Assessing Officer levied a penalty of Rs.2,15,053/-. Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) dismissed the appeal for the reason that the assessee failed to make any 4 ITA 347/Mum/2023 M/s Ramanarain And Company submissions before him and based on the materials that were available on record, confirmed the levy of penalty. Aggrieved, the assessee is in appeal before the Tribunal.
The Ld.AR submitted that it is a settled law that no penalty is leviable when the addition is made based on estimation. The L.AR further submitted that the entries based on which the penalty is levied are genuine transactions that have been account for in the books of account and paid through normal banking channel. Therefore, it was submitted that there was no concealment of income warranting penalty.
The Ld.DR, on the other hand, relied on the order of the lower authorities.
We heard the parties and perused the materials on record. In the quantum appeal we notice that the addition is made in assessee’s case as a percentage of bogus purchases i.e. by applying 12.50% towards gross profit on the bogus purchases. The Assessing officer while levying penalty has applied the minimum tax rate on the gross profit estimated by the Assessing Officer. The main contention of the ld AR is that when profit is arrived at on an estimate basis there cannot be any levy of penalty for concealment of income for which he relied on various judicial pronouncements. We notice that the coordinate bench of the Tribunal in in the case of ACIT vs. M/s. Fancy Diamonds India Pvt. Ltd. vide order dated 17.06.2022, which has held that in case where the addition is made on estimated basis, the penalty u/s. 271(1)(c) of the Act is not leviable. The Tribunal has relied on the decision of the Hon’ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries reported as 360 ITR 580, the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. reported as 303 ITR 53 and Hon’ble Gujarat High Court in the case of CIT vs. Subhash Trading Co. Ltd.
5 ITA 347/Mum/2023 M/s Ramanarain And Company reported as 221 ITR 110. It is observed that all the above mentioned decisions have reiterated the proposition that the penalty u/s. 271(1)(c) of the Act cannot be levied in case where the addition is made on estimated basis. Therefore it is a settled position that when the addition is made on estimated basis, there cannot be any penalty levied. In assessee’s case the Assessing Officer has made the addition by estimating the profit @ 12.50% on alleged bogus purchases for the reason that the assessee has spiked the purchase price in order reduce the profits and the said purchases made by the assessee from hawala parties. The penalty u/s.271(1)(c) is levied by applying the minimum tax rate on the said estimated profits and therefore the ratio of the above decisions is clearly applicable in assessee’s case. In view of this discussion, and respectfully following the various judicial precedence we hold that penalty under section 271(1)(c) of the Act cannot be levied where the addition is made on estimate basis and accordingly the penalty levied is hereby deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 19/05/2023.