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Facts
The Assessing Officer (AO) made an addition on account of bogus purchases on an estimate basis. Consequently, penalty proceedings were initiated under Section 271(1)(c) of the Income Tax Act, 1961. The CIT(A) sustained the penalty.
Held
The Tribunal held that when an addition is made on an estimate basis and the claim is unproved but not disproved, penalty under Section 271(1)(c) cannot be levied solely on that basis, especially when documentary evidence was produced by the assessee, though not found satisfactory by the AO.
Key Issues
Whether penalty under Section 271(1)(c) can be levied when additions are made on an estimate basis and the assessee's claim is unproved but not disproved.
Sections Cited
271(1)(c), 147, 148, 143(3)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
This appeal has been preferred by the assessee against order dated 26.10.2023 passed by the Ld. Commissioner of Income-tax – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2009-10, in relation to penalty u/s 271(1)(c) of the Income-tax Act, 1961 (in short ‘the Act’) levied by the Assessing tax Act, 1961 (in short ‘the Act’) levied by the Assessing tax Act, 1961 (in short ‘the Act’) levied by the Assessing Officer.
The grounds raised by the assessee are reproduced as under: The grounds raised by the assessee are reproduced as under: The grounds raised by the assessee are reproduced as under:
Under the facts and in law, the learned CIT(A) erred in 1. Under the facts and in law, the learned CIT(A) erred in 1. Under the facts and in law, the learned CIT(A) erred in confirming levying of penalty w/s 271(1(c) of the confirming levying of penalty w/s 271(1(c) of the Income Tax Income Tax Act, 1961 of Rs. 4,61,734/ Act, 1961 of Rs. 4,61,734/-. 2 1.1 Under the facts and in law, the learned CIT(A) erred in 2 1.1 Under the facts and in law, the learned CIT(A) erred in 2 1.1 Under the facts and in law, the learned CIT(A) erred in confirming that the appellant is guilty of furnishing inaccurate confirming that the appellant is guilty of furnishing inaccurate confirming that the appellant is guilty of furnishing inaccurate particulars of income liable for levy of penalty us 271(1)(c) of the particulars of income liable for levy of penalty us 271(1)(c) of the particulars of income liable for levy of penalty us 271(1)(c) of the Income Tax Act, 196 Income Tax Act, 1961. 1.2 Under the facts and in law, the learned CIT(A) failed to 1.2 Under the facts and in law, the learned CIT(A) failed to 1.2 Under the facts and in law, the learned CIT(A) failed to appreciate the submissions made by the appellant and also the appreciate the submissions made by the appellant and also the appreciate the submissions made by the appellant and also the fact that, addition is made on estimate basis and no penalty fact that, addition is made on estimate basis and no penalty fact that, addition is made on estimate basis and no penalty u/s 271(1)(c) of the Act can be levied where addition is made u/s 271(1)(c) of the Act can be levied where addition is made u/s 271(1)(c) of the Act can be levied where addition is made on estimate basis. 3. We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. In the case, the Assessing Officer . In the case, the Assessing Officer made addition in respect of bogus purchases on estimate basis @ made addition in respect of bogus purchases on estimate basis @ made addition in respect of bogus purchases on estimate basis @ 12.5% of the bogus purchases amount and accordingly initiated the 12.5% of the bogus purchases amount and according 12.5% of the bogus purchases amount and according penalty proceedings u/s 271(1)(c) of the Act for furnishing penalty proceedings u/s 271(1)(c) of the Act for furnishing penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of the income inaccurate particulars of the income. After consider fter considering submission of the assessee, the Assessing Officer levied penalty vide order dated he Assessing Officer levied penalty vide order dated he Assessing Officer levied penalty vide order dated 30.03.2019. On further appeal, the Ld. CI 30.03.2019. On further appeal, the Ld. CIT(A) also sustained the T(A) also sustained the said penalty. Before us, the Ld. counsel for the assessee submitted said penalty. Before us, the Ld. counsel for the assessee submitted said penalty. Before us, the Ld. counsel for the assessee submitted that addition has been made on estimate basis and therefore, that addition has been made on estimate basis and therefore, that addition has been made on estimate basis and therefore, relying the decision of Coordinate Bench of Tribunal of Coordinate Bench of Tribunal of Coordinate Bench of Tribunal in the case of M/s S4 Interior in M/s S4 Interior in for assessment year for assessment year 2009-10, the penalty is liable to be cancelled. We find that in the 10, the penalty is liable to be cancelled. We find that in the 10, the penalty is liable to be cancelled. We find that in the said case, the Co-ordinate Bench of the Tribunal has held that the ordinate Bench of the Tribunal has held that the ordinate Bench of the Tribunal has held that the Assessing Officer made addition on estimate basis which was Assessing Officer made addition on estimate basis Assessing Officer made addition on estimate basis merely in the nature of unproved in the nature of unproved claim and not a claim claim and not a claim which was disproved on the basis of irrefutable basis of irrefutable documentary evidence documentary evidences. The relevant finding of the Tribunal is reproduced as under: relevant finding of the Tribunal is reproduced as under: relevant finding of the Tribunal is reproduced as under:
“7. We have further deliberated at length on the contentions We have further deliberated at length on the contentions We have further deliberated at length on the contentions advanced by the authorized representativ advanced by the authorized representatives of both the parties, es of both the parties, in the backdrop of the merits of the case. We find, that in the backdrop of the merits of the case. We find, that in the backdrop of the merits of the case. We find, that admittedly it is a case where the A.O had on an estimate basis admittedly it is a case where the A.O had on an estimate basis admittedly it is a case where the A.O had on an estimate basis made an addition of 12.5% of the value of the unproved made an addition of 12.5% of the value of the unproved made an addition of 12.5% of the value of the unproved purchases. Further, on a perusal of the orders of the low purchases. Further, on a perusal of the orders of the low purchases. Further, on a perusal of the orders of the lower authorities, it emerges that the A.O had declined to accept the authorities, it emerges that the A.O had declined to accept the authorities, it emerges that the A.O had declined to accept the genuineness and veracity of the purchase transactions under genuineness and veracity of the purchase transactions under genuineness and veracity of the purchase transactions under consideration, for the reason, that the documentary evidence consideration, for the reason, that the documentary evidence consideration, for the reason, that the documentary evidence produced by the assessee to substantiate the same, were not produced by the assessee to substantiate the same, were not produced by the assessee to substantiate the same, were not found by him to his satisfaction. We are of the considered view, him to his satisfaction. We are of the considered view, him to his satisfaction. We are of the considered view, that the addition made by the A.O on an estimate basis is that the addition made by the A.O on an estimate basis is that the addition made by the A.O on an estimate basis is merely backed by an unproved claim of the assessee, and not a merely backed by an unproved claim of the assessee, and not a merely backed by an unproved claim of the assessee, and not a claim which was disproved to the hilt on the basis of irrefutable claim which was disproved to the hilt on the basis of irrefutable claim which was disproved to the hilt on the basis of irrefutable documentary e documentary evidence by the revenue. In the backdrop of the vidence by the revenue. In the backdrop of the aforesaid facts, it can safely be concluded that though the aforesaid facts, it can safely be concluded that though the aforesaid facts, it can safely be concluded that though the unproved purchases would justify an addition in the hands of unproved purchases would justify an addition in the hands of unproved purchases would justify an addition in the hands of the assessee, however, no penalty under Sec. 271(1)(c) merely the assessee, however, no penalty under Sec. 271(1)(c) merely the assessee, however, no penalty under Sec. 271(1)(c) merely on the said basis could ha on the said basis could have been validly imposed. We find that ve been validly imposed. We find that our aforesaid view is fortified by the judgment of the Hon'ble our aforesaid view is fortified by the judgment of the Hon'ble our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. High Court of Bombay in the case of CIT Vs. Upendra V. Mithani Upendra V. Mithani (ITA (L) No. 1860 of 2009), dated 05.08.2009, wherein it was (ITA (L) No. 1860 of 2009), dated 05.08.2009, wherein it was (ITA (L) No. 1860 of 2009), dated 05.08.2009, wherein it was observed as under: observed as under:- "The issue "The issue involved in the appeal revolves around involved in the appeal revolves around deletion of penalty under Section 271(1)(c) of the I.T. Act. deletion of penalty under Section 271(1)(c) of the I.T. Act. deletion of penalty under Section 271(1)(c) of the I.T. Act. The Tribunal has concurred with the view taken by the The Tribunal has concurred with the view taken by the The Tribunal has concurred with the view taken by the Commissioner of Income Tax (A). The Commissioner of Commissioner of Income Tax (A). The Commissioner of Commissioner of Income Tax (A). The Commissioner of Income Tax (A) has rightly taken a view that no penalty Income Tax (A) has rightly taken a view that no pe Income Tax (A) has rightly taken a view that no pe can be imposed if the facts and circumstances are can be imposed if the facts and circumstances are can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount equally consistent with the hypothesis that the amount equally consistent with the hypothesis that the amount does not represent concealed income as with the does not represent concealed income as with the does not represent concealed income as with the hypothesis that it does. If the assessee gives an hypothesis that it does. If the assessee gives an hypothesis that it does. If the assessee gives an explanation which is unproved but not disproved, ie. it is explanation which is unproved but not disproved explanation which is unproved but not disproved not accepted but circumstances do not lead to the not accepted but circumstances do not lead to the not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's reasonable and positive inference that the assessee's reasonable and positive inference that the assessee's case is false. The view taken by the Tribunal is a case is false. The view taken by the Tribunal is a case is false. The view taken by the Tribunal is a reasonable and possible view. The appeal is without any reasonable and possible view. The appeal is without any reasonable and possible view. The appeal is without any substance. same is dismissed in l substance. same is dismissed in limine with no order as imine with no order as to costs." to costs." We are of the considered view, that the assessee in the case We are of the considered view, that the assessee in the case We are of the considered view, that the assessee in the case before us had failed to substantiate the genuineness and before us had failed to substantiate the genuineness and before us had failed to substantiate the genuineness and veracity of the purchases claimed to have been made from the veracity of the purchases claimed to have been made from the veracity of the purchases claimed to have been made from the aforementioned parties, by placing on reco aforementioned parties, by placing on record the documentary rd the documentary evidence as was called for by the A.O. However, we cannot also evidence as was called for by the A.O. However, we cannot also evidence as was called for by the A.O. However, we cannot also remain oblivious of the fact that as the assessee had evidenced remain oblivious of the fact that as the assessee had evidenced remain oblivious of the fact that as the assessee had evidenced the purchase transactions under consideration, by placing on the purchase transactions under consideration, by placing on the purchase transactions under consideration, by placing on record certain documents viz. invoices, ledger ac record certain documents viz. invoices, ledger accounts of record certain documents viz. invoices, ledger accounts of parties, bank statements etc, the authenticity of which had parties, bank statements etc, the authenticity of which had parties, bank statements etc, the authenticity of which had neither been dislodged or disproved by the lower authorities, neither been dislodged or disproved by the lower authorities, neither been dislodged or disproved by the lower authorities, therefore, the same in itself takes the case of the assessee therefore, the same in itself takes the case of the assessee therefore, the same in itself takes the case of the assessee beyond the realm of the penal provisions contemplated under beyond the realm of the penal provisions contemplated under beyond the realm of the penal provisions contemplated under Section 271(1)(c). We further find that the Hon'ble Supreme tion 271(1)(c). We further find that the Hon'ble Supreme tion 271(1)(c). We further find that the Hon'ble Supreme Court by dismissing the Court by dismissing the 'Special leave Petition' (SLP) of the 'Special leave Petition' (SLP) of the revenue in CIT revenue in CIT-2 Lucknow Vs. U.P State Bridge Corporation Ltd. 2 Lucknow Vs. U.P State Bridge Corporation Ltd. (SLP) (Civil) (2018) 97 Taxman.com 279 (SC), had recently (SLP) (Civil) (2018) 97 Taxman.com 279 (SC), had recently (SLP) (Civil) (2018) 97 Taxman.com 279 (SC), had recently upheld the order upheld the order of the Hon'ble High Court of Allahabad. In the of the Hon'ble High Court of Allahabad. In the aforesaid case, the High Court had observed that where a claim aforesaid case, the High Court had observed that where a claim aforesaid case, the High Court had observed that where a claim of expenditure is neither found inaccurate, nor could be viewed of expenditure is neither found inaccurate, nor could be viewed of expenditure is neither found inaccurate, nor could be viewed as concealment of income on the part of the assessee, then concealment of income on the part of the assessee, then concealment of income on the part of the assessee, then merely because the sai merely because the said claim was not accepted or acceptable d claim was not accepted or acceptable to the revenue, that by itself would not attract penalty under to the revenue, that by itself would not attract penalty under to the revenue, that by itself would not attract penalty under Sec. 271(1)(c). Now, in the case before us, as the revenue had Sec. 271(1)(c). Now, in the case before us, as the revenue had Sec. 271(1)(c). Now, in the case before us, as the revenue had failed to disprove to the hilt on the basis of clinching failed to disprove to the hilt on the basis of clinching failed to disprove to the hilt on the basis of clinching documentary evidence, the authenti documentary evidence, the authenticity of the claim of the city of the claim of the assessee of having made purchases from the aforementioned assessee of having made purchases from the aforementioned assessee of having made purchases from the aforementioned parties, therefore, merely on the basis of the unproved claim of parties, therefore, merely on the basis of the unproved claim of parties, therefore, merely on the basis of the unproved claim of purchases, no penalty under Sec. purchases, no penalty under Sec. 271(1)(c) could have been 271(1)(c) could have been validly imposed on validly imposed on the assessee.” 3.1 In the instant case, the Assessing Officer has estimated the ant case, the Assessing Officer has estimated the ant case, the Assessing Officer has estimated the profit in respect of bogus purchases without brining on any profit in respect of bogus purchases without brining on any profit in respect of bogus purchases without brining on any clinching material to establish furnishing of inaccurate particulars clinching material to establish furnishing of inaccurate particulars clinching material to establish furnishing of inaccurate particulars on the part of the assessee. Therefore, following the decision of the on the part of the assessee. Therefore, following the decision of the on the part of the assessee. Therefore, following the decision of the Co-ordinate Bench of the Tribunal (supra), we set aside the finding nate Bench of the Tribunal (supra), we set aside the finding nate Bench of the Tribunal (supra), we set aside the finding of the Ld. CIT(A) and cancel the penalty levied by the Assessing of the Ld. CIT(A) and cancel the penalty levied by the Assessing of the Ld. CIT(A) and cancel the penalty levied by the Assessing Officer. The grounds of appeal of the assessee are accordingly Officer. The grounds of appeal of the assessee are accordingly Officer. The grounds of appeal of the assessee are accordingly allowed.
In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on nounced in the open Court on 18/02/2025. /02/2025.