PROMPT TOYS PRIVATE LTD,MUMBAI vs. ITO -7(3) (4) , MUMBAI

The brief facts are that the assessee is engaged in business of manufacturing of toys and had filed its return of income dated 24-09- 2009 declaring total income of Rs.8,33,416/-. The assessee’s case was selected for scrutiny and assessment order u/s 143(3) dated 29-12-2011 was passed determining total income of Rs. 15,82,091/-. The AO levied penalty amounting to Rs. 2,85,400/- u/s 271(1)(C) of the Act on the ground that the assessee concealed the particulars of its income amounting to Rs. 09,24,599/-. Aggrieved by this the assessee was in appeal before the Ld. CIT(A) who confirmed the said penalty levied by the AO.

The Assessee is in appeal before us against the order of Ld. CIT(A). The Ld. DR contented that the assessee has failed to appear before the AO during the penalty proceedings but had appeared before the Ld. CIT(A) and had given detailed submission before the First Appellate Authority. The Ld. DR relied on the decision of the lower authorities.

It is observed that the AO has reopened the assessment of the assessee on the basis of the information from the DGIT(Inv.) Mumbai that the assessee has made bogus purchases from two hawala parties to the tune of Rs. 73,96,790/-. The assessee was unable to produce the alleged purchase parties before the AO and addition was confirmed by the AO and the CIT(A). On appeal before the Tribunal it was held that only the profit element embedded in bogus purchases has to be taxed, thereby directing the AO to estimate the net profit @12.5% on the total purchases made from the alleged parties. Penalty was levied on the net profit of impugned transaction. The assessee has submitted that the assessee has neither concealed the particulars of income nor has furnished inaccurate particulars of income as the said impugned purchased transaction was said to be already furnished in the books of accounts of the assessee. The assessee further contends that addition was made only on estimated basis on account of difference in gross margin earned from sale against the purchase from party alleged to be non-genuine. The assessee denies concealment of income as the addition was merely on estimate basis.

We find that the present case in hand pertains to the addition made on estimate basis for which there is settled proposition of law that no penalty can be levied on estimated rate of profit. We find the decisions of co-ordinate benches and various high courts in support of the said view. In the case of Harigopal singh v/s CIT 258 ITR85(P&H) the Hon’ble Punjab and Haryana High Court held that ”Provision of section 271(1)(C) are not attracted to cases where income of the assessee is assessed on estimate basis and additions are made therein on that basis”

We would also like to place our reliance on the decisions in the case of CIT v/s Subhash Trading Company (Guj), CIT v/s Aero Traders Pvt. Ltd. 322 ITR 316 (Del) and the decision of the co-ordinate bench in ITO 12(1)(2), Mumbai v/s Selvaraj and Anthony Muthu Chettiar which has also taken a similar view.

From the above observation, we are of the considered view that the assessee has furnished the details pertaining to the impugned purchases in its return of income and has also filed purchase bills, delivery challans and payment proof to prove genuinity of the purchases. As the impugned additions has been made on estimate basis, by respectfully following the above cited decisions we hold that penalty levied u/s 271(1)(C) of the Act by the AO for the impugned assessment year is to be deleted. 8. In the result, the appeal filed by the assessee is allowed.