ITO-28(2)(1), MUMBAI vs. M/S LESLY BABY THOMAS , MUMBAI

The brief facts of the case as emanating from records are: The assessee is a reseller of Petroleum products. The assessment for the impugned Asessment Year (AY) in the case of assessee was re-opened on the ground that the assessee has indulged in obtaining bogus purchase bills from hawala operators. The AO made addition of Rs. 36,62,952/- by estimating Gross Profit (GP) at the rate of 25% on alleged hawala purchases. Further, the AO initiated penalty proceedings under section 271(1)(c) of the Income Tax Act on the addition made in respect of alleged bogus purchases. The AO vide order dated 22.05.2017 levied penalty of Rs. 6,71,111/- for concealment of income under section 271(1)(c) of the Act. Aggrieved by the penalty order, the assessee filed appeal before the CIT(A). The CIT(A) following the decision of Tribunal in the case of Shruti Fastners Ltd. Vs. DCIT [49 CCH 183 (Del. Trib.)] and in the case of Rakesh Kumar Gupta vs. ITO [49 CCH 66 (Mum.Trib.)] deleted penalty on the ground that no penalty can be levied on additions made on estimate basis. Hence, the present appeal by the Revenue.

Shri Vinod Bhaskaran representing the Department vehemently defended the order levying penalty under section 271(1)(c) of the Act. The DR submitted that the AO levied penalty only after verifying the fact that the assessee has evaded tax on bogus purchase bills. The assessee failed to discharge its onus in proving genuineness of the purchases and had illegally enriched himself without discharging tax liability.

On the contrary, Dr. P. Daniel appearing on behalf of the assessee vehemently defended the impugned order and prayed for dismissing the appeal of Revenue on the short ground of Low Tax Effect in the light of CBDT Circular No. 3/2018. The ld. Counsel further submitted that the penalty has been rightly deleted by the CIT(A) as the penalty has been levied on estimated additions. It is a well-settled law that no penalty is leviable on additions made on estimations.

Both sides heard, orders of authorities below examined. Undisputedly penalty under section 271(1)(c) has been levied by the AO on bogus purchase additions made on estimations. The assessee has allegedly obtained bogus purchase bills to the tune of Rs. 1,46,51,809/-. The AO has estimated profits at the rate 25% on such purchases and made addition of Rs. 36,62,952/-. It is on this addition that the AO has levied penalty under the provisions of section 271(1)(c) of the Act. The Hon’ble High Courts and various benches of the Tribunal have time and again held that no penalty is leviable where addition has been made merely on estimations. The CIT(A) has deleted the penalty by following the order of Tribunal.

The Hon’ble Delhi High Court in the case of CIT vs. Aero Traders Pvt. Ltd. reported as 322 ITR 326 has held that no penalty under section 271(1)(c) of the Act can be imposed where income is determined on estimate basis. Penalty being quasi criminal proceedings, duty is cast upon the AO to establish guilt of the assessee in concealing the income or furnishing inaccurate particulars of such income. The Hon’ble Gujarat High Court in the case of CIT vs. Subhas Trading Co. reported as 221 ITR 110 has held that where the AO after rejecting accounts of the asessee has assessed the income by applying estimated Gross Profit (GP) rate,

We find no infirmity in the impugned order, hence the same is upheld and the appeal of Revenue is dismissed, sans merit.