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Facts
The assessee's appeals were against penalty orders under Section 271(1)(c) for AYs 2010-11 and 2011-12, arising from additions made on account of alleged bogus purchases. The Assessing Officer (AO) reopened assessments based on information about accommodation entries and applied a GP rate of 12.5%.
Held
The Tribunal held that the additions were sustained purely on an estimated gross profit without direct evidence of concealment. The initial addition was restricted to 5% by the Tribunal, eroding the foundation for levying penalty.
Key Issues
Whether penalty under Section 271(1)(c) can be sustained when additions are based on estimated gross profit without direct evidence of concealment?
Sections Cited
271(1)(c), 147, 143(3), 148
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Income Tax Appellate Tribunal, ‘C’ BENCH
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
आदेश / O R D E R PER AMIT SHUKLA (J.M):
These appeals, filed by the assessee, are directed against the separate impugned orders dated 17th December 2024, passed by the National Faceless Appeal Centre (NFAC), Delhi, confirming the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, for the Assessment Years (AYs) 2010‑11 and 2011‑12. Since the issues involved in both years are common and arise out of identical facts, these appeals 963/Mum/2025 Suresh Ukhchand Mehta, HUF were heard together and are being disposed of by this consolidated order for the sake of convenience.
In both years under appeal, the assessee is aggrieved by the imposition of penalty under section 271(1)(c), amounting to ₹1,58,544 for AY 2010‑11 and ₹1,41,607 for AY 2011‑12. The penalty proceedings emanate from the assessments framed under section 147/143(3), wherein additions were made on account of alleged bogus purchases.
Briefly stated, the Assessing Officer (AO), based on information received from the DGIT (Investigation), observed that the assessee was one of the beneficiaries of accommodation entries provided by certain MVAT dealers who were found indulging in issuing bogus purchase bills. Based on this information, the AO reopened the assessment under section 148 and, during reassessment, applied a gross profit (GP) rate of 12.5% on the alleged non-genuine purchases. 3.1. In AY 2010‑11, the AO made an addition of ₹5,88,588 on alleged purchases aggregating to ₹47,08,701, and in AY 2011‑12, an addition of ₹15,76,897 was made on alleged purchases of ₹1,26,15,175.
The matter travelled to this Tribunal in the quantum proceedings, wherein, after a detailed consideration of the facts and submissions of the parties, this Tribunal restricted the addition to 5% of the alleged bogus purchases, as against the AO’s estimation of 12.5%. Consequently, the estimated additions stood substantially reduced in both years.
963/Mum/2025 Suresh Ukhchand Mehta, HUF 5. From a perusal of the records, it is evident that the assessee had duly placed on record the purchase invoices, corresponding sales, and payment details, all of which were made through proper banking channels. The AO, however, without conducting any independent enquiry or bringing any corroborative evidence on record, relied solely upon third- party information from the VAT Department to conclude that the purchases were non-genuine. 5.1. It is pertinent to note that the sales made by the assessee have not been doubted at any stage, nor has there been any finding that the purchases were not supported by invoices or that the goods were not delivered. The addition has thus been sustained purely to account for a possible inflation of gross profit on account of accommodation entries, and even this estimation has been significantly scaled down by this Tribunal to 5%.
In light of the above facts, it becomes manifest that the addition sustained is based purely on an estimated gross profit. There is no material on record to establish that the assessee had furnished inaccurate particulars of income or concealed any income. In such circumstances, where the additions are based solely on estimation without any direct evidence of concealment, the levy of penalty under section 271(1)(c) cannot be sustained.
In the present case, the AO has applied an estimated GP rate of 12.5%, which has further been reduced to 5% by this Tribunal, clearly demonstrating the absence of any conclusive finding of concealment. Thus, the very foundation of the 963/Mum/2025 Suresh Ukhchand Mehta, HUF penalty stands eroded. We, therefore, find no justification for sustaining the penalty levied in either of the years under appeal.
Accordingly, the penalties imposed under section 271(1)(c) for AYs 2010‑11 and 2011‑12 are directed to be deleted. 9. In the result, both appeals filed by the assessee are allowed.