INCOME TAX OFFICER 13(2) (3), MUMBAI vs. SWAR CREATIVE ART PVT LTD , MUMBAI

Ms. Bharti Singh representing the Department submitted that the assessee had obtained bogus purchase bills amounting to Rs. 17,56,910/- during the period relevant to the Assessment Year (AY) under appeal. The assessee could neither prove genuineness of the dealers nor the genuineness of the purchases. The AO after examining the facts disallowed 25% of the bogus purchases under section 69C of the Act and made addition of Rs. 4,39,228/-. Further, the AO levied penalty of Rs. 1,40,000/- under section 271(1)(c) of the Act vide order dated 20.03.2018 for furnishing inaccurate particulars of income. In appeal by the assessee, the CIT(A) deleted penalty. The DR submitted that the CIT(A) has erred in not appreciating the fact that the assessee has failed to prove genuineness of the purchases and the quantum addition was confirmed by the Tribunal in appeal by the assessee in decided on 21.08.2017.

We have heard the submissions made by ld. DR and have examined the orders of authorities below. It is an undisputed fact that the penalty under section 271(1)(c) of the Act has been levied in respect of estimated additions made on bogus purchases. The assessee has allegedly obtained bogus purchase bills to the tune of Rs. 17,56,910/- from hawala operators, the AO has disallowed 25% of such bogus purchases on mere estimations and made addition of Rs. 4,39,228/-. There is no definite finding of furnishing inaccurate particulars of income to the extent of Rs. 4,39,228/- by the Assessing Officer. The Tribunal and various Hon’ble High Courts have repeatedly held that no penalty under section 271(1)(c) of the Act is attracted, where the additions are made merely on estimations.

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.

Thus, in view of our above findings, we find no infirmity in the impugned order deleting penalty levied under section 271(1)(c) of the Act on estimated