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Facts
The Revenue preferred appeals against the deletion of penalties by the CIT(A) for Assessment Years 2008-09, 2009-10, and 2010-11. The original addition was on account of alleged bogus purchases, which was reduced on appeal. The penalty was levied under Section 271(1)(c) of the Income Tax Act.
Held
The Tribunal held that the penalty under Section 271(1)(c) is not imposable when the addition is made purely on an estimation basis, especially concerning bogus purchases. Citing decisions from its own benches and the Rajasthan High Court, the Tribunal found the penalty unsustainable.
Key Issues
Whether penalty under Section 271(1)(c) is leviable when the primary addition itself is based on estimation and for alleged bogus purchases?
Sections Cited
250, 271(1)(c), 143(3), 147
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER (Assessment Year: 2009-2010) & Income Tax Officer 5(2)(1), Mumbai R. No.567, Aayakar Bhavan, M. K. Road, Mumbai – 400020, Maharashtra. …………. Appellant Vs IORA Diamonds Private Limited EC, 3010 Bharat Diamond Bourse, Bandra Kurla Complex, Bandra East Mumbai – 400051, Maharashtra. [PAN:AABCI7082G] …………. Respondent Appearance For the Appellant /Department : Shri Mahesh Pamnani For the Respondent /Assessee : Shri Akhilesh Deshmukh Date Conclusion of hearing : 29.01.2025 Pronouncement of order : 31.01.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. These are three appeals preferred by the Revenue pertaining to Assessment Years 2008-2009, 2009-2010 and 2010-2011. Since identical issues were raised in the appeals, the same were heard together and are, therefore, being disposed by way of a common order.
ITA No.6396/Mum/2024, & Assessment Year 2008-2009, 2009-2010 & 2010-2011
2. We would first take-up appeal for the Assessment Year 2008-2009. 1. The present appeal preferred by the Revenue is directed against the order, dated 17/10/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had allowed the appeal against the Penalty Order, dated 05/01/2022, passed under Section 271(1)(c) of the Act for the Assessment Year 2008-2009. 2. The Revenue has raised following grounds of appeal :
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty even though the Hon’ble ITAT confirmed the part addition on merits that proves the assessee company was involved in concealment of income by booking expenses in its books of accounts through bogus purchases.
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that the addition on account of bogus purchase was made because the assessee had failed to explain and substantiate the genuineness of the purchases with actual delivery of goods which is concealment of income and accordingly the part additions were confirmed by the CITA() and Hon’ble ITAT.
3. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.”
The relevant facts in brief are in brief are that assessment was framed on the Assessee for the Assessment Year 2008-2009 vide Assessment Order, dated 28/03/2016, under Section 143(3) read with Section 147 of the Act at the assessed income of INR.61,04,920/- after making addition of INR.3,42,644/- on account of alleged bogus purchases being 12.5% of alleged bogus purchases ITA No.6395/Mum/2024 & Assessment Year 2008-2009, 2009-2010 & 2010-2011 of INR.27,41,152/-. In appeal preferred by the Assessee, the CIT(A) restricted the aforesaid addition to INR.2,19,292/- being 8% in the appellate proceedings. The appeal preferred by the Revenue against the aforesaid relief granted by the CIT(A) was dismissed by the Tribunal.
Vide Penalty Order, dated 05/01/2022, penalty of INR.67,762/-was levied under Section 271(1)(c) of the Act in respect of aforesaid addition of INR.2,19,292/- sustained by the CIT(A)/Tribunal. The appeal preferred by the Assessee against aforesaid levy of penalty was allowed by the CIT(A), vide order dated 17/10/2024. Being aggrieved, the Revenue has now preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.
We have heard both the sides and perused the material on record. We find that the CIT(A) has deleted the penalty by following the decision of the Tribunal in the case of Supertech Construction Co. Vs. ACIT [ITA No. 910/Mum/2023, dated 05/12/2023] and judgment of the Hon’ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries [360 ITR 580]. The relevant extract of the decision of CIT(A) reads as under:
“8. Decision: 8.1. The instant appeal has been filed against the order u/s.271(1)(c) dated 05- 01-2022 for A.Y.2008-09. In the assessment order the AO had made addition of Rs. 3,42,644/- being 12.5% of bogus purchases. The above estimated addition was reduced by CIT(A) by reducing the percentage of estimation from 12.5% to 8%. The above order was confirmed by Hon. ITAT. The AO has levied penalty of Rs. 67,762/- u/s 271(1)(c) on the above addition, against which the appellant has filed the instant appeal.
8.2 I have considered the submissions filed by the appellant ITA No.6395/Mum/2024 & Assessment Year 2008-2009, 2009-2010 & 2010-2011 during the appellate proceedings, which have been extracted in the preceding para. In the case of Supertech Construction Co. Vs. ACIT, In ITA No. 910/Mum/2023, Hon. ITAT, Mumbai vide order dated 05.12.2023 has held that penalty u/s 271(1)(c) is not imposable on bogus purchase addition. The Hon. Rajasthan High Court in the case of CIT Vs. Krishi Tyre Retreading and Rubber Industry has held that, where addition is made purely on estimation basis, no penalty u/s 271(1)(c) of the Act is leviable. There are catena of decisions by different High Courts and various benches of ITAT wherein penalty u/s 271(1)(c) of the Act levied on the basis of estimated addition has been held to be unsustainable. Thus, in the facts of the instant case, penalty levied u/s 271(1)(c) of the Act levied based on estimated addition of bogus purchases is unsustainable. The assessing officer is directed to delete the penalty. The grounds of appeal s are allowed.
9. In the result, the appeal is allowed.
9. In the result, the appeal is allowed.” 6. There is nothing on record to persuade us to take a view different from the above view taken by the CIT(A). The Learned Authorized Representative for the Appellant has also placed on record the decisions of Mumbai Bench of the Tribunal in the case of (a) Fancy Diamonds India Pvt. Ltd. Vs. DCIT 5(1)(1), Mumbai [ITA No.961 to 963/Mum/2023, Assessment Years 2010-11 to 2012-13, dated 20/06/2023] and (b) M/s. Vijay Jewellers Vs. Deputy Commissioner of Income Tax 19(3), Mumbai [ITA No.4203 & 4304/Mum/2024, Assessment Years 2012-13 & 2011-12, dated 03/10/2024] whereby, in identical facts and circumstances, the Tribunal had deleted penalty levied under Section 271(1)(c) of the Act on the ground that addition was made on estimate basis. In view of the above, we decline to interfere with the order passed by the CIT(A) deleting the penalty levied under Section 271(1)(c) of the Act, and therefore, Ground No.1, 2 and 3 raised by the Revenue are dismissed.
ITA No.6396/Mum/2024, & Assessment Year 2008-2009, 2009-2010 & 2010-2011
In result, the appeal preferred by the Revenue for the Assessment Year 2008-2009 is dismissed. (Assessment Year 2010-2011) 8. preferred by the Revenue is directed against the order, dated 17/10/2024, passed by the CIT(A) under Section 250 of the Act whereby the Ld. CIT(A) had allowed the appeal against the Penalty Order, dated 05/01/2022, passed under Section 271(1)(c) of the Act for the Assessment Year 2009-2010. ITA No.6397/Mum/2024 preferred by the Revenue is directed against the order, dated 17/10/2024, passed by the CIT(A) under Section 250 of the Act whereby the Ld. CIT(A) had allowed the appeal against the Penalty Order, dated 05/01/2022, passed under Section 271(1)(c) of the Act for the Assessment Year 2010-2011. 9. Both the sides agree that in identical facts and circumstances penalty was levied under Section 271(1)(c) of the Act for the Assessment Years 2009-2010 and 2010-2011, and therefore, our findings/adjudication in relation to appeal for the Assessment Year 2008-2009 shall apply mutatis mutandis to the appeals for the Assessment Year 2009-2010 and 2010-2011. Accordingly, keeping in view identical facts and circumstances prevailing in the Assessment Year 2009-2010 and 2010-2011, and adopting the reasoning given while dismissing the appeal preferred by the Revenue for the Assessment Year 2008-2009, we delete the penalty of INR.29,655/- and INR.31,592/- levied under Section 271(1)(c) of the Act for the Assessment Year 2009-2010 and 2010-2011, respectively. Ground No.1, 2 and 3 raised by the Revenue in appeals for the Assessment Year 2009-2010 and 2010-2011 are dismissed.
ITA No.6396/Mum/2024, & Assessment Year 2008-2009, 2009-2010 & 2010-2011
In result, the appeal preferred by the Revenue for the Assessment Year 2009-2010 and 2010-2011 are dismissed.
In conclusion, all the three appeals preferred by the Revenue are dismissed.