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Facts
The assessee's case was reopened under Section 147 based on information regarding alleged bogus purchases from hawala dealers. The AO made an addition based on an estimated GP rate of 12.5% and subsequently levied a penalty under Section 271(1)(c). In quantum proceedings, the Tribunal later reduced the GP rate to 2%, thereby substantially reducing the quantum addition to Rs.2,20,000/-.
Held
The Tribunal held that a penalty under Section 271(1)(c) cannot be levied when the addition is based on an ad-hoc estimation of the Gross Profit rate, especially when the quantum addition itself has been significantly reduced by the Tribunal. Consequently, the penalty confirmed by the CIT(A) was deleted.
Key Issues
Whether a penalty under Section 271(1)(c) for alleged bogus purchases is sustainable when the addition is based on an estimated Gross Profit rate and the quantum addition has been substantially reduced in appellate proceedings.
Sections Cited
271(1)(c), 147, 143(3)
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Income Tax Appellate Tribunal, ‘C’ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 27/09/2024 passed by ld. CIT(A)-48, Mumbai in relation to the penalty proceedings u/s.271(1)(c) for the A.Y.2007-08.
Pratap Uttam Purohit 2. Assessee is mainly aggrieved by levy of penalty of Rs.4,25,000/- on account of estimated GP rate of alleged bogus purchases.
The brief facts are that assessee had filed his return of income on 31/10/2007 declaring total income of Rs.65,47,581/-. The case was later reopened u/s.147 on the basis of information received from DDIT (Investigation) that assessee has availed some alleged bogus bills from hawala dealers amounting to Rs.1,10,02,460/-. In the assessment order passed u/s.143(3) r.w.s. 147 dated 30/03/2015, addition of Rs.13,75,308/- was made by applying GP rate of 12.5% on such alleged bogus purchases. In the quantum proceedings upto the stage of the Tribunal, the GP rate has been reduced to 2% of the alleged bogus purchases and accordingly, the quantum addition was substantially reduced to Rs.2,20,000/-. However, the ld. AO had levied the penalty on addition of Rs.13,75,308/- of Rs.4,25,000/- Even the ld. CIT (A) has confirmed the said penalty despite the fact that in the quantum proceedings the addition itself was reduced and therefore, the quantum of penalty confirmed by him at Rs.4,25,000/- itself was erroneous.
On perusal of the orders it is seen that, nowhere the ld. AO had disputed the fact that these purchases were made from the sources declared in the books of accounts and corresponding sales and quantity tally has not been disturbed. The addition was made by applying the GP rate by the ld. AO which has been substantively reduced by the Tribunal, i.e., from 12.5% to 2%. In
In the result, appeal of the assessee is allowed.
Order pronounced on 7th January ,2025.