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Facts
The assessee's case was reopened, and an addition was made for alleged bogus purchases. The CIT(A) restricted the addition to the profit element of these purchases at 12.5%. Subsequently, a penalty was levied on this restricted addition.
Held
The Tribunal held that penalty cannot be levied on additions made on an estimated basis, especially when the grounds for concealment or inaccurate particulars are not proven. The issue of penalty on estimated additions is no longer debatable.
Key Issues
Whether penalty under Section 271(1)(c) can be levied on an addition sustained on an estimated profit basis.
Sections Cited
271(1)(c), 148, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
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/250/2024-25/1073224826(1), dated 13.02.2025 passed against the penalty order by Income Tax Officer, Ward-9(1)(1), Mumbai, u/s. 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 28.03.2019 for Assessment Year 2011-12.
Grounds taken by the assessee are reproduced as under: "1. The AO. erred in law and on the basis of facts and circumstances of the case in levying penalty of Rs. 2,02,781 / u/s 271(1) (C) of I.T. Act without considering the facts that penalty cannot be levied on ad hoc or estimated additions.
ACE Electromagnetics Pvt. Ltd. AY 2011-12 2. The penalty order Ordered passed by A.O. is against the natural justice, equity and good conscience and deserved to be modified.” Additional Grounds 1. The Ld.CIT(A) erred in confirming the actions of Assessing Officer in initiating penalty proceedings under Section 271(1)(e) of the Income-tax Act, 1961, without striking off the irrelevant limb, i.e., whether the penalty levied is for concealment of particulars of income or for furnishing inaccurate particulars of income and the same is bad in law.
2. The Ld. CIT(A) erred in conforming the penalty order u/s. 271(1)(c) of the Income tax Act, 1961 without appreciating that penalty u/s. 271(1)(c) ought not to be levied on addition made on estimated basis."
The only issue raised in this appeal is in respect of levy of penalty of Rs. 2,02,781/- u/s 271(1)(c) on an ad-hoc/estimated addition made by the Ld. Assessing Officer. Facts of the case are that assessee is engaged in the business of manufacturing of transformers and testing of the same. It filed its return of income on 29.09.2011 reporting total income at Rs. 19,67,197/-. Case of the assessee was reopened by issuing notice u/s 148, dated 09.03.2015, based on information received from DGIT, Mumbai from the Sales Tax Department. Assessment was completed by making an addition of Rs. 52,50,000/- for alleging bogus purchases made by the assessee from three parties. Books of account were rejected u/s 145(3) and the additions were made. In the course of assessment, assessee had produced the details which included purchase bills, copy of bank statement highlighting the payments made to the purchase parties and details regarding goods purchased in these transactions. However, ld. Assessing Officer did not consider the details so submitted and completed the assessment by making the said addition. Assessee went in appeal before the ld. CIT(A) who restricted the addition so made to profit element embedded in the alleged bogus purchases by taking rate of 12.5% on the said alleged bogus purchases. He thus, sustained the addition of Rs. 6,56,250/- and the balance was deleted.
On the imposition of penalty, contention of the assessee is that the addition made originally by ld. Assessing Officer by taking the entire purchase value has been reduced to the profit element embedded in the said alleged purchases by taking an estimate rate of 12.5% and therefore, on such an addition based on net profit estimation, no penalty is leviable. Assessee made submission by referring to various judicial precedents to state that no penalty is imposable on estimated addition because factum of either concealment of particulars of income or furnishing of inaccurate particulars of income are not proved. Ld. Sr. DR, however, placed reliance on the order of the Coordinate Bench, where the addition has been sustained. Assessee also contended that all the details relating to the purchases made which have been alleged to be bogus where substantiated by documentary evidences including stock register, bank statements and goods received note which have not been considered in proper perspective by the authorities below.
We have heard both the parties and considered the material placed on record. Considering the facts on record, it is undisputed that addition sustained in the hands of the assessee is by adopting a rate of 12.5% to add on an estimate basis, the element of profit embedded in the purchases which have been alleged to be bogus. The issue of imposing penalty on the quantum addition which has been sustained on an estimate basis is no longer res integra. Accordingly, in the given set of facts which are undisputed and remain uncontroverted, the penalty so imposed is deleted. Ground raised by the assessee is allowed.
Assessee has also raised an additional ground contesting on the invalidity of notice issued since the limb not relevant for imposing of penalty has not been struck of. Since the penalty has already been ACE Electromagnetics Pvt. Ltd. AY 2011-12 deleted by us by allowing ground No.1 raised by the assessee, additional ground raised by the assessee is rendered academic and therefore not adjudicated upon.
In the result, appeal of the assessee is allowed.