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Facts
The assessee, an HUF engaged in trading non-ferrous metal, faced penalty proceedings under section 271(1)(c) for assessment year 2010-11. The Assessing Officer made additions based on information from the Sales Tax Department regarding accommodation entries and estimated gross profit. The CIT(A) confirmed the penalty, which was levied on additions made by them.
Held
The Tribunal held that no penalty is leviable on additions made on an estimation basis. It noted that the co-ordinate bench had already restricted the additions based on estimation, and thus, the penalty imposed on such additions could not sustain.
Key Issues
Whether penalty under section 271(1)(c) can be levied on additions made on estimation basis, especially when a co-ordinate bench has already restricted such additions on the same basis.
Sections Cited
271(1)(c), 143(3), 274, 69C, 143(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
1. This appeal filed by the Assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2024-25/1067042716(1), dated 26.07.2024, passed against the penalty order by Income Tax Officer, Ward-31(1)(2), Mumbai, u/s.271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 09.02.2017, for Assessment Year 2010-11.
Grounds taken by the Assessee are reproduced as under:
“(1). On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming levy of penalty of Rs.5112402/- under section 271(1)(c) of the Act.
(2). On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming conclusion arrived at by the learned Assessing Officer that the appellant has concealed his income and committed default within the meaning of provisions of section 271(1)(c) and liable for penalty under section 271(1)(c) of the Act.
(3). On the fact and circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) failed to adjudicate grounds of appeal of the appellant and erred in confirming order made under section 271(1)(c) of the Act which is bad in law
(a) in as much in the order made under section 143(3) of the Act penalty was initiated for furnishing inaccurate particulars of income whereas in the order under section 271(1)(c) of the Act penalty is levied for concealment of income.
(b) The learned Commissioner of Income Tax (Appeals) failed to record his satisfaction about concealment of income by the appellant in the order made under section 143(3) of the Act
(c) The notice issued under section 274 read with section 271 of the Act is not discernable as to whether the penalty proceedings is initiated for furnishing of inaccurate particulars of income or concealment of income and therefore, the impugned order passed deserves to be cancelled.
The learned Commissioner of Income Tax (Appeals) erred in confirming order made under section 271(1)(c) of the Act which is illegal, bad-in-law, ultra vires and without allowing reasonable opportunity of the hearing, and without appreciating the facts, submission and evidences in their proper perspective and is liable to be annulled.”
There is delay of 278 days in filing the present appeal for which petition for condonation of delay along with affidavit is placed on record. On perusal of the affidavit, we note about the statement made by the assessee that he was not aware of the facts that First Appellate Authority had passed the order on 26.07.2024 since he had responded to all the notices starting from 20.11.2018 till 18.07.2024. After this period, there was no notice which was issued for any further compliance. Further, in Form No.35, assessee had specifically mentioned that notice for hearing should not be sent on email but same should be sent physically by post. For this, reference was made to Form 35 wherein there is a specific input required against the column ‘whether notices/communication may be sent on email?’. Against this, assessee had opted ‘No’. Thus, assessee never received the notice in physical form because of which it was unaware of the appellate order having passed. Later on, assessee came to know about the order telephonically from the office of the Income-tax Department based on which email was checked and the order was downloaded. Assessee had deposited the appeal filing fee on 30.06.2025 i.e. on the same date when he came to know about the passing of the order. Thereafter, all the required steps were undertaken to file the appeal along with the delay.
3.1. Having considered these factual submissions, we find it appropriate to condone the delay and take up the matter for adjudication.
Facts of the case are that assessee had filed its return of income on 08.09.2010, reporting total income at Rs.2,65,260/-. Assessee is a HUF and is engaged in the business of trading in non-ferrous metal in the name and style of M/s. Rikita Metal. In the course of assessment proceedings, assessee was called upon to file details of purchases amounting to Rs.4,81,93,368/-. Learned AO had received information from the Sales Tax Department, Mumbai regarding suspicious parties who were providing accommodation entries without doing any actual business. Based on this information Learned AO noted that assessee had obtained such accommodation entries from three parties which is tabulated below:
S. Name of the party TIN Amount No.
1. M/s. Maa Chamunda Sales Pvt. 27730694988V 2,45,03,936 Ltd.
2. M/s. Parasnath Enterprise 27160660721V 1,21,18,757 3. M/s. Jainam Trader Corporation 27070656939V 1,07,43,230 Total 4,73,65,923 4.1. After considering the detailed submissions and explanation along with documentary evidence, assessment was completed by making an addition of Rs.1,33,14,280/- as peak balance applying section 69C of the Act. Learned AO assumed Gross Profit in the year under consideration at 8% of the total turnover which comes to Rs.39,09,796/-. After giving credit for Gross Profit of Rs.6,79,087/- returned by the assessee, the balance amount of Rs.32,30,709/- was added to the total income. This matter travelled up to Co-ordinate Bench of ITAT, Mumbai.
4.2. The factual positions tabulated by the assessee against the quantum addition for the imposition of penalty thereafter is tabulated as under:
Nature of Business Business of trading in non- ferrous metal 2. Income as per ROI Rs.2,65,263/- 3. Tax Paid as per ROI Rs.10,842/- 4. Order u/s.143(1) of the Act By CPC
Before Ld. AO: Quantum 6. Case selected under scrutiny 7. Notice u/s.143(2) of the Act 28.09.2011 8. Assessment Order 143(3) dated 28.03.2013
Addition by Ld. AO 10. a. Peak Balance of purchases Rs.1,33,14,280/-
b. Estimated gross profits on Turnover @8% - Rs.32,30,709/- 12. c. Total addition by Ld. AO Rs.1,65,44,989/- 13. Before Ld. CIT(A): 14. Order 12.03.2015 15. Upheld addition made by Ld. Assessing Rs.1,65,44,989/- Officer
Before Hon’ble ITAT, Mumbai 17. Order 16.09.2019 18. Estimated gross profits @ 2% 19. Income as per estimation @ 2% Rs.9,47,318/- 20. Tax @ slab rate on estimated income Rs.2,79,385/- 21. Tax Payable Rs.2,79,385/-
Penalty @ 100% on additions by Ld. Rs.51,12,402/- CIT(A) (Effect of Hon’ble ITAT order have not been given or considered)
Penalty levied on additions by Ld. CIT(A) Rs.51,12,402/- (Effect of Hon’ble ITAT order have not been given or considered)
5. Submissions of the assessee are two-fold whereby it is stated that no penalty is leviable u/s.271(1)(c) of the Act on addition made on estimation basis and the other that penalty has been levied on additions confirmed by Learned CIT(A) without appreciating the fact that Co-ordinate Bench of ITAT has restricted the addition so made which again is based on an estimation by adopting the rate of 2%. In the given set of facts, the present penalty order whereby penalty of Rs.51,12,402/- is levied on the additions by Learned CIT(A) without taking into effect the order passed by the Co-Ordinate Bench in the quantum appeal, the said order imposing penalty has not legs to stand and is therefore liable to be set aside. The order giving effect has not been passed and once the order of Co-ordinate Bench on the quantum appeal is taken into account, the penalty so imposed would not survive (details already tabulated above).
5.1. On the additions sustained by the Co-ordinate Bench which is again based on estimation as aforesaid, penalty is still not leviable since it falls in the bucket of cases where no penalty is leviable on additions made on estimation basis. Thus, in both the situations the impugned penalty order has to go.
5.2. Learned Counsel for the assessee has placed reliance on long line of decisions to fortify the case that no penalty can be imposed when income is determined on estimation basis which is a settled law. Accordingly, the penalty so imposed is deleted. Grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.