ALAMGIR KASAM ALI,MUMBAI vs. ITO 26 (1)(1), MUMBAI

This appeal in A.Y.2009-10 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-38, Mumbai in appeal No.CIT(A)-38/ITO-26(1)(2)/IT-10062/2018-19 dated 14th May 2019 (ld. CIT(A) in short) in the matter of imposition of penalty u/s.271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as Act).

The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the levy of penalty on an estimated addition made to the extent of 12.5% of value of bogus purchases.

We have heard rival submissions and perused the materials available on record. We find that assessee is a proprietor of M/s. Indian Steels Forging Company engaged in the business of manufacturing of tube fittings flanges. We find that during the year under consideration assessee has purchased materials from five parties whose names have been reported as tainted dealers in the website of Government of Maharashtra Sales Tax department and the total value of such purchases were Rs.40,62,462/-. The ld. AO in respect of outstanding purchases (i.e. purchases for which payments were not made as on 31/03/2009 and remaining as sundry creditors) to the extent of Rs.11,16,232/- sought to add the same as cessation of liability in terms of Section 41(1) of the Act. In respect of remaining purchases of Rs.29,46,224/- (Rs.40,62,224 – 11,16,232) , the ld AO resorted to estimate the profit element embedded thereon @25% and completed the quantum assessment. The ld. CIT(A) applied the profit percentage of 25% on the total disputed purchase value of Rs.40,62,462/- and sustained the addition only to the extent of Rs.10,15,615/- (Rs.40,62,462 x 25%). On further appeal by the assessee to this Tribunal, this profit percentage was reduced to 12.5% in quantum proceedings. The ld. AO levied penalty on this ultimate estimated addition of 12.5% and levied penalty u/s.271(1)(c) of the Act. This penalty was sustained by the ld. CIT(A). The law is very well settled that penalty would not be levied on an estimated addition and accordingly, we hereby direct the ld. AO to delete the penalty u/s.271(1)(c) of the Act. Accordingly, grounds of assessee are allowed.

In the result, appeal of the assessee is allowed.