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Facts
A search and seizure action under Section 132(1) was conducted, leading to the assessee, Dev Engineers, being covered under Section 153C. Additions were made to the assessee's income for cash expenses, bogus purchases, and bogus labour payments, prompting penalty proceedings under Section 271(1)(c) for AYs 2015-16 & 2016-17 and Section 271AAB for AY 2017-18. While the Ld. CIT(A) and subsequently the ITAT Coordinate Bench granted partial relief, reducing the quantum of additions, penalties were still imposed.
Held
The Tribunal observed that the additions sustained by the Coordinate Bench were based purely on estimation, and it is a settled legal principle that penalty under Section 271(1)(c) is not leviable on additions made on an estimate basis. Finding the lower authorities' decision to uphold penalties flawed despite partial relief and the estimation basis, the ITAT deleted the penalties levied under both Section 271(1)(c) and Section 271AAB for all assessment years.
Key Issues
Whether penalty under Section 271(1)(c) or Section 271AAB is leviable when additions to income, despite partial relief from appellate authorities, are sustained purely on an estimate basis.
Sections Cited
132(1), 153C, 143(3), 69C, 271(1)(c), 271AAB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These three appeals filed by the assessee are against the orders of Ld. CIT(A)-48, Mumbai, vide order nos.
i) ITBA/APL/S/250/2024-25/1069174245(1), ii) ITBA/APL/S/250/2024-25/1069174402(1) iii) ITBA/APL/S/250/2024-25/1069174068(1) all dated 27.09.2024 passed against the penalty orders by the Deputy Commissioner of Income Tax, Central Circle – 2(1), Mumbai, dated 31.05.2023 for Assessment Years 2015-16 and 2016-17, u/s. 271(1)(c) of the Income-tax Act (hereinafter referred to as the “Act”) and for 2017- 18, u/s. 271AAB of the Act.
2. This set of three appeals by the assessee is on a common issue of levy of penalty on the issues which in the quantum proceedings have been decided by the Coordinate Bench of ITAT Bench in assessee’s own case, granting partial relief by adopting certain percentages on an estimate basis. For appeal in Assessment Year 2017-18, the penalty levied is u/s.271AAB and for the other two years u/s. 271(1)(c). Since identical issue is involved in all the three appeals, we take up appeal for Assessment Year 2015-16 for drawing the facts and give our findings thereon which will apply mutatis mutandis on the other two appeals also.
Assessee filed its return of income on 29.09.2015 reporting total income at Rs 4,10,19,620/-. Subsequently, a search and seizure action u/s. 132(1) of the Act was conducted in the case of Shri Pratap Uttam Purohit on 16.02.2017. Assessee was covered u/s 153C on the basis of the incriminating documents pertaining to assessee were found and seized during the course of search and seizure action. Shri Pratap Uttam Purohit was the key person of the Group and runs a proprietary concern in the name and style of M/s Dev Engineers. Shri Pratap Uttam Purohit was engaged in carrying out civil contract works awarded by BMC/MCGM through his proprietorship concern M/s. Dev Engineers. However, w.e.f. 20.12.2014 Shri Pratap Uttam Purohit converted his proprietorship concern M/s. Dev Engineers into a partnership firm with the same name i.e. M/s. Dev Engineers and continued to carry on his business in this new partnership firm.
3.1. During the course of search, it was noticed by the search team that assessee had indulged itself in booking bogus bills of purchases and sub-contracts in his books of accounts in his proprietorship concern M/s Dev Engineers as well as in the books of his partnership firm M/s. Dev Engineers. Notice u/s.153C of the Act dated 14.09.2018 was issued and duly served upon the assessee. In response, assessee filed its return of income u/s 153C for A.Y. 2015-16 on 04.10.2018 declaring total income at Rs.4,10,19,620/-. An order u/s 143(3) r.w.s. 153C of the Act was passed on 27.12.2018, assessing the total income at Rs. 6,37,94,600/-, after making addition of Rs. 1,83,380/- on account of cash expenses, Rs.58,59,297/- on account of bogus purchases expenditure u/s. 69C and Rs. 1,67,32,303/- on account of bogus labour payment u/s.69C of the Act. Penalty proceedings u/s 271(1)(c) were initiated for furnishing inaccurate particulars of income and a notice u/s. 271(1)(c) of the Act dated 27.12.2018 was issued and served on the assessee to file explanation for the same within seven days. Assessee filed a letter on 16.01.2019 requesting to keep penalty proceedings in abeyance for the reason that assessee had filed an appeal before the Ld. CIT(A) which was pending for disposal.
3.2. Ld. CIT(A) passed a combined order for A.Y. 2015-16 & 2016-17 and granted part relief to the assessee vide order No. CIT(A)-48/I.T. 6568 657/DCCC-2(1)/2018-19 dated 31.10.2019.
Aggrieved with the order of the Ld. CIT(A), assessee filed an appeal before the Tribunal. Coordinate Bench of ITAT allowed partial relief to the assessee. Details of additions upheld by ld. CIT(A) and the Coordinate Bench are as under-
Particulars Addition Addition Addition Amount made in confirmed confirmed Liable for the by the Ld. by the levy of assessment CIT(A) Hon'ble Penalty order ITAT
1. Addition for Cash Expenses (Rs.1,83,380/-)
(i) Site Expenses 66,014 46,210 26,406 26,406 (50% of Expenses) (Reduced to (Reduced to 35% 20% from 50%) from 50%)
(ii) Conveyance 1,17,365 82,156 46,946 46,946 Expenses (Reduced to (Reduced to (50% of Expenses) 35% from 20% from 50%) 50%)
Bogus Purchases (Rs.58,59,297/-)
(i)Purchase made 2,07,738 2,07,738 4,155 4,155 from 6 parties (Confirmed (restricted which could not be the to 2% of the verified specific addition disallowanc made by the e) AO)
(ii)Other expenses 56,51,559 37,67,706 Nil NIL claimed for (i.e. (Total purchases (3% of 56,51,559- addition total material 18,83,853) amount purchases) deleted by (Reduced to ITAT) 2% from 3%)
3. Bogus Labour Contract Payment (Rs.1,67,32,303/-)
(i)Payments made 1,26,36,860 63,18,430 6,31,843 6,31,843 to 9 parties which (Reduced to (5% of could not be 50% from disallowanc verified. 100%) e confirmed)
(ii)Other expenses 40,95,443 40,95,443 Nil NIL claimed for (Confirmed [Total payments of labour the addition addition contract (3% of made by the amount total payments) AO) deleted by ITAT)
Total addition 7,09,350 confirmed by the Hon'ble ITAT
Despite the above tabulated findings of Coordinate Bench, allowing partial relief to the assessee, which is reproduced by ld. Assessing Officer in para -6 of the impugned order while imposing penalty, he noted in para – 8 that, submissions made by the assessee are found to be not acceptable. Such an irresponsible noting by ld. Assessing Officer despite having findings of the Coordinate Bench on the quantum additions on record, reflects absence of fundamental understanding of judicial discipline, while taking up penalty proceedings. The table produced in para-6 of the impugned penalty order, for all the additions made by the ld. Assessing Officer have been either reduced to a lower percentage from the percentage at which the addition was made or have been deleted in toto. For example, in the case of addition for cash expenses on account of “site expenses”, ld. Assessing Officer made the addition by applying 50% of the expenses which was reduced by ld. CIT(A) to 35% and was subsequently reduced to 20% by the Coordinate Bench. Similar is the case for other expenses and payments for which additions have been made.
5.1. We are ridiculed to note that even the first appellate authority, despite taking record of partial relief to the assessee in terms of the findings as stated above has observed that there appears to be a malafide intention of the assessee and “mens rea” is present in the case. He concluded to uphold the penalty so imposed on account of furnishing inaccurate particulars of income by the assessee.
5.2. It is a fact on record as noted both by ld. Assessing Officer and ld. CIT(A), tabulated above that additions sustained are purely on estimate basis. The issue before us is no longer res integra and it is a settled law that in the said factual position, penalty is not imposable on additions sustained on estimate basis. It is an accepted fact that whenever an addition is made on the basis of estimate, penalty u/s.271(1)C is not leviable. There is no scope to levy penalty under the said section.
Accordingly, in the given set of facts, the penalty levied u/s.271(1)C is deleted. Ground raised by the assessee is allowed.
In the result, appeal of the assessee is allowed.
For the other two appeals, for Assessment Year 2016-17 and 2017-18, there being identical fact pattern, except that for Assessment Year 2017-18, the penalty is imposed u/s. 271AAB, our observations and findings in applies mutatis mutandis to and 6004/Mum/2024. Both, ld. Assessing Officer and ld. CIT(A) have made identical observations and arrived at adverse conclusions despite partial relief granted by Coordinate Bench on quantum additions as discussed above. In the result, these two appeals are also allowed.
Order is pronounced in the open court on 20 February, 2025