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Facts
The assessee's assessment was reopened, leading to additions for estimated Gross Profit on alleged bogus purchases. Subsequently, the Assessing Officer levied a penalty under Section 271(1)(c) for concealment and furnishing inaccurate particulars of income for three assessment years.
Held
The ITAT upheld the CIT(A)'s deletion of the penalty, ruling that a penalty under Section 271(1)(c) is not warranted when quantum additions are based solely on estimated income from alleged non-genuine purchases, without conclusive proof of concealment or inaccurate particulars. This decision applied to all three assessment years due to identical facts.
Key Issues
Whether penalty under Section 271(1)(c) is leviable for additions made on an estimated basis regarding alleged bogus purchases, in the absence of conclusive proof of concealment or inaccurate particulars of income.
Sections Cited
271(1)(c), 143(3), 147
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Before: SHRI AMIT SHUKLA & SMT. RENU JAUHRI
Assessee by : Mr. N. S. Porwal & Mr. N. N. Porwal Revenue by : Shri Mahesh Pamnani Date of Hearing 07.01.2025 Date of Pronouncement 09.01.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- These three appeals have been filed by the revenue against the orders of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] deleting the penalty levied u/s 271(1)(c) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2009-10 (Rs. 53,272/-), AY 2010-11 (Rs. 18,209/-) & AY 2011-12 (Rs. 32,235/-).
3807 & 3806/Mum/2024 A.Y. 2009-10, 2010-11 & 2011-12 Parekh Dyes Chemicals 2. The assessee has raised following grounds of appeal: AY 2009-10
1. 'Whether on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting penalty levied u/s 271(1)(c) of the Income tax Act without appreciating that the penalty was levied in respect of quantum addition confirmed by the Ld. CIT(A) on account of purchases from parties debited in the books of account which proved bogus on the basis of information received from external sources in the nature of law enforcement agencies arid other facts and material on record wherein the onus was on the assessee to establish the genuineness of purchases from such parties and the assessee failed to discharge his onus?
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty merely because the addition was made on estimate basis, though the estimation was necessitated on the face of very fact that the assessee got its grey market purchases regularized by accepting accommodation entries of purchases at inflated values from entry provider concerns?" AY 2010-11 “1. Whether on the facts and in circumstances of the case, the Ld CIT(A) has erred in deleting penalty levied u/s 271(1)(c) of the Income tax Act without appreciating that the penalty was levied in respect of quantum addition confirmed by the Ld. CIT(A) on account of purchases from parties debited in the books of account which proved bogus on the basis of information received from external sources in the nature of law enforcement agencies arid other facts and material on record wherein the onus was on the assessee to establish the genuineness of purchases from such parties and the assessee failed to discharge his onus?" 2.Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty merely because the addition was made on estimate basis, though the estimation was necessitated on the face of very fact that the assessee got its grey market purchases regularized by accepting accommodation entries of purchases at inflated values from entry provider concerns? AY 2011-12
1. Whether on the facts and in circumstances of the case, the Ld CIT(A) has erred in deleting penalty levied u/s 271(1)(c) of the Income tax Act without appreciating that the penalty levied in respect of quantum addition confirmed by the Ld. CIT(A) on account of purchases from parties debited in the books of account which proved bogus on the basis of information received from external sources in the nature of law enforcement agencies arid other facts and material on record wherein the onus was on the assessee to establish the genuineness purchases from such parties and the assessee failed to discharge his onus 2.Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty merely because the addition was made on estimate basis, though the estimation was necessitated on the face of very fact that the assessee got its grey market purchases regularized by accepting 3807 & 3806/Mum/2024 A.Y. 2009-10, 2010-11 & 2011-12 Parekh Dyes Chemicals accommodation entries of purchases at inflated value from entry provider concerns?"
Since facts in all the three cases are identical, these appeals are being disposed of together vide a common order, and AY 2009-10 is taken up as a lead case.
Brief facts of the case are that the assessee had filed original return declaring income of Rs. 17,43,249/- for AY 2009-10 on 31.07.2009. Subsequently, the case was reopened and assessment was completed u/s 143(3) r.w.s. 147 of the Act. Income was determined at Rs. 20,26,060/- after making addition of Rs. 2,28,809/- by applying Gross Profit (GP) rate @17.93% of bogus purchases amounting to Rs. 15,77,297/-. Ld. AO also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income and concealment of income.
In quantum appeal before Ld. CIT(A), GP rate was restricted to 7% as against the @17.93% applied by the AO, and thus, he confirmed the addition to the extent of Rs. 1,10,411/-. Thereafter, Ld. AO levied a penalty of Rs. 53,272/- u/s 271(1)(c) of the Act for concealment of income and furnishing inaccurate particulars of income.
Aggrieved with the order of Ld. AO, the assessee preferred an appeal before Ld. CIT(A). Vide order dated 06.06.2024, the appeal of the assessee was allowed by Ld. CIT(A) with the following observations: “6. I have gone through the assessment order, the assessment order, grounds of appeal
and written submissions of the appellant. The facts of the case are that the AO received information that the appellant had claimed some purchases from accommodation entry providers. Accordingly, AO made an addition of 18.93% of 3807 & 3806/Mum/2024 A.Y. 2009-10, 2010-11 & 2011-12 Parekh Dyes Chemicals such unverifiable purchases as additional income of the appellant. The CIT(A) reduced the GP rate to 8.75% and confirmed the addition of Rs.1,09,586/-. The AO treated the same as concealment of income and furnishing of inaccurate particulars and levied the penalty of Rs. 18.209/-. Aggrieved by the said levy of penalty, the appellant is in appeal and has raised 4 grounds which are adjudicated as under:-
7. Ground No.1 to 4 are relating to levy of penalty u/s.271(1)(c) of the Act of Rs. 18,209/- without giving any opportunity of being heard and the penalty notice issued was without cancelling the relevant limb of the penalty and the penalty levied was on estimated income, which was not sustainable. All these grounds are being adjudicated together. 7.1 The appellant herein had made purchases worth Rs.5,78,900/- from four parties as mentioned on page 2 of the assessment order. The AO had the information that the said parties were accommodation entry providers and hence, had not actually sold the goods in question to the appellant. However, since the appellant herein had shown sale of goods and since the sale could not be effected without making purchases, the AO took the view that the appellant might have purchased goods from grey market in order to avoid local taxes. Therefore, the AO disallowed of 18.93% of purchases and made an addition of Rs. 1,09,586/- . The addition was restricted to 8.75% by CIT(A) and thus, the amount of addition was reduced to Rs.50,654/-. The AO levied penalty on the above said addition amounting to Rs.18,209/-. 7.2 The appellant contended that the assessing officer has made the impugned quantum addition only on presumptions and that too on estimated basis. Accordingly, it was contended that the AO was was justified in levying the penalty, since the addition has been made on estimated basis. 7.3 I find that there is merit in the contentions of the appellant. Admittedly, the AO has disallowed 18,93% of purchases only on presumptions without establishing fully that the appellant has made purchases from grey market. Even, if it is assumed for a moment that the appellant might have purchased goods from grey market, it was not established that the amount of purchases was less than that recorded in the books of account. Under these set of facts, it has to be held that the impugned addition has been made only on estimated basis that too on presumptions only. Hence, by following the decision rendered by the Hon'ble ITAT Mumbai, E-Bench in the case of ETCO Profiles Pvt. Ltd. 61 taxmann.com 470 (2015) 1 hold that the impugned penalty is liable to be deleted. Accordingly, the penalty of Rs. 18,209/- levied u/s 271(1)(c) of the Act stands deleted. Ground No. 1 to 4 are treated to have been allowed.”
Against the order of Ld. CIT(A), the revenue is in appeal before us.
We have heard the rival submissions and perused the material on record. Admittedly, the AO had only estimated the GP on the alleged non-genuine purchases without there being any conclusive proof of concealment of income or furnishing of inaccurate particulars of income. The estimated addition made by the Ld. AO has been further reduced by the Ld. CIT(A). Accordingly, the 3807 & 3806/Mum/2024 A.Y. 2009-10, 2010-11 & 2011-12 Parekh Dyes Chemicals decision of the Ld. CIT(A) in deleting the penalty levied on estimated income is justified and in accordance with several decisions of the co-ordinate benches on the same issue. We, therefore, find no infirmity in the order of the Ld. CIT(A). The appeal of the revenue is, accordingly, dismissed. AY 2010-11 & 2011-12 8. Under similar facts and circumstances, penalties for AY 2010-11 of Rs. 18,209/- and for AY 2011-12 of Rs. 32,235/- have been levied by the Ld. AO u/s 271(1)(c) of the Act. Since facts of these years are identical, the decision in AY 2009-10 will apply mutatis mutandis in both these assessment years also. Accordingly, penalties of Rs. 18,209/- for AY 2010-11 and Rs. 32,235/- for AY 2011-12 are hereby deleted.
In the result, all the three appeals of the revenue are dismissed. Order pronounced in the open court on 09.01.2025.