ITO 27(1)(4), NAVI MUMBAI vs. DHIRAJ D. CHHADWA, MUMBAI

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ITA 3634/MUM/2019Status: DisposedITAT Mumbai22 October 2020AY 2009-103 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the penalty under section 271(1)(c) is not sustainable when the addition is made on an estimated basis. The conduct of the assessee was not contumacious, and the tax effect was below the CBDT limit.

What were the facts?

The Assessing Officer made a 100% disallowance of purchases amounting to Rs. 21,46,011/-. The CIT(A) reduced this disallowance to 16.82% and deleted the penalty levied under section 271(1)(c). The revenue appealed against the deletion of the penalty.

What were the issues?

Whether penalty under Section 271(1)(c) is leviable when income is estimated and whether the tax effect below the prescribed limit affects the penalty.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

For Respondent: Shri Jeetendra Kumar
Hearing: 20.10.2020Pronounced: 22.10.2020

O R D E R Per Shamim Yahya (AM) :-

This appeal by the revenue wherein the revenue is aggrieved that the Learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] has erred in deleting the penalty levied under section 271(1)(c) of the Income Tax Act amounting to rupees 142,366/- by order dated 7.3.3019 pertaining to assessment year 2009-10.

2.

Brief facts of the case are that assessee is an individual. During the course of assessment proceedings the Assessing Officer made disallowance of 100% of the purchases amounting to Rs. 21,46,011/-. In appeal learned CIT(A) directed to reduce the disallowance to 16.82% by the average gross profit. Penalty under section 271(1)(c) of the Act amounting to rupees 1,42,366/- was also levied.

3.

Upon assessee's appeal learned CIT(appeals) deleted the penalty by concluding as under :-

2 Shri Dhiraj Dharamshi Chhadwa

“Further, in a recent decision of Delhi ITAT in the case of Shruti Fastners Ltd. vs. DCIT (2017) 49 CCH 0183 Del-Trib and ITAT Mumbai in the case of Rakeshkumar M. Gupta vs. ITO(2O17) 49 CCH 0066 Mum-Trib, it has been held that where income has been estimated, the appellant cannot be said to have concealed particulars of income or furnished inaccurate particulars of income and therefore, penalty u/s 271(1)(c) was not leviable.

In the background of the aforesaid discussions and respectfully following the precedents, as above, I am of the considered view that the appellant has not concealed the particulars of income and nor has it furnished inaccurate particulars of income, there being are no findings of the AO that the details furnished by the appellant in his return are found to be inaccurate or erroneous or false. Accordingly, I delete the penalty of Rs. 1,42,366/- levied by the Assessing Officer u/s. 271(1)(c) of the Act.”

4.

Against this order revenue is in appeal before the ITAT. We have heard the learned departmental representative and perused. We find the addition on account of bogus purchases has been done on estimated basis. The learned CIT(A) is correct in holding that the penalty under section 271(1)(c) of the Act this case is not sustainable. We further note that the conduct of the assessee in this case cannot be considered be contumacious warrant levy of penalty under section 271(1)(c) of the Act.

5.

This proposition is supported by the decision of the larger Bench of honourable Supreme Court decision the case of Hindustan Steel Vs. State of Orissa Vs. (83 ITR 26)(SC). Moreover in the written submission by the Id counsel of the assessee it has pointed out that tax effect in this case is below the limit fixed by CBDT vide circular no. 17/2019 dated 8.8.2019.

6.

The Ld DR tried to mention that since the addition is based upon information from Sales tax Authority an outside agency the penalty can also be considered to be so based and hence would fall under the exemption carved out in the said CBDT circular. We are not convinced by this argument. Once the revenue concedes that penalty has been levied based upon outside agency information the penalty would have no legs to stand.

7.

Be as it may we uphold the order of Ld CIT(A) deleting the penalty.

3 Shri Dhiraj Dharamshi Chhadwa In the result appeal filed by the revenue stands dismissed. 8. Order pronounced under Rule 34(4) of the ITAT Rules on 22.10.2020.

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