Loading judgment…
Facts
The Revenue appealed against the order of the CIT(A) which had deleted the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed on additions made for bogus purchases, which were initially estimated by the Assessing Officer and later restricted by the ITAT. The Revenue's appeal is based on grounds that the CIT(A) erred in deleting the penalty, ignoring the findings of the Sales Tax Department and the assessee's inability to produce supporting documents.
Held
The Tribunal noted that the penalty was levied on additions made on an estimated basis. Citing various High Court decisions and its own co-ordinate bench rulings, the Tribunal held that penalty under Section 271(1)(c) is not leviable on additions made merely on estimations, as there is no definite finding on the quantum of concealment of income. Therefore, the penalty is unsustainable.
Key Issues
Whether penalty under Section 271(1)(c) of the Income Tax Act is sustainable when the addition to income was made on an estimated basis, rather than on concrete evidence of concealment.
Sections Cited
271(1)(c), 250, 143(3), 147, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER Income Tax Officer – 19(1)(1), Mumbai Naveen Kumar 501, Piramal Chambers, Lalbaug, Mumbai – 400012, Maharashtra. …………. Appellant Vs Ashok Industrial Corporation 18, Nanubhai Desai Road, C. P. Tank, Mumbai - 400004, Maharashtra. [PAN:AAEFA5524H] …………. Respondent Appearance For the Appellant /Department : Shri Ram Krishn Kedia For the Respondent /Assessee : Shri Vimal Sethiya Date Conclusion of hearing : 05.12.2024 Pronouncement of order : 30.12.2024 O R D E R [ Per Rahul Chaudhary, Judicial Member:
1. 1. The present appeal preferred by the Revenue is directed against the order, dated 21/06/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had allowed the appeal against the Penalty Order, dated 28/02/2018, passed under Section 271(1)(c) of the Act for the Assessment Year 2009-10.
2. The Revenue has raised following grounds of appeal : Assessment Year 2009-2010 “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty levied u/s 271(1)(c) of the IT Act. of Rs. 1,44,633/- ignoring the fact that the Sales Tax Department has proved beyond doubt that parties declared as hawala traders were involved in providing accommodation entry of purchases and the assessee was one of the beneficiary of accepting accommodation entry for the purchase and the penalty was levied on the basis of the addition made on account of bogus purchases.?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) has erred in deleting the penalty levied u/s. 271(1)(c) of the IT Act of Rs. 1,44,633/-, ignoring the fact that the assessee could neither produce the quantity tally of day to day purchases, Sales, Stocks and corresponding values nor could produce the parties for verification, in spite of opportunity provided by the Assessing Officer ?
3. Whether on the facts and in the circumstances of the case and in law, the Ld CT(A) has erred in deleting the penalty levied u/s. 271(1)(c) of the I.T. Act of Rs. 1,44,633/-, without appreciating the ratio of the decision of the Hon'ble Bombay High Court in case of PCIT VS S.V. Jiwani (2022/145 taxmann.com (Bombay) and Hon'ble Gujarat High Court in case of CIT Vs Simit Sheth, wherein the Court has held that when the purchases are from bogus suppliers, the purchases @12.5% are liable to disallowed and the penalty was levied on the basis of the addition made on account of bogus purchases.?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) has erred in deleting the penalty levied u/s. 271(1)(c) of the IT Act of Rs. 1,44,633/-, ignoring the fact that upon invoking provisions of section 271(1) (c), there is no further onus on the AO to establish mens rea and it for the assessee to satisfactorily discharge the onus of proving the bonafide with regard to claim expenses, as is held by the Hon'ble Apex Court in the case of K.P.Madhusudhan Vs CIT reported in 251 ITR 99(SC)?
5. This appeal is being filed as it is covered under the exception clause provided in para 3.1(h) of the CBDT's Circular No.5 of 2024 dated 15.03.2024, as amended vide F.No.279/Misc. 142/2007-ITJ(Pt) dated 15.03.2024 ".
6. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary."
2 Assessment Year 2009-2010 3. The relevant facts the return of income for the year under consideration has been filed on 29/09/2009 declaring total income of INR.89,730/-. Subsequently, assessment in this case was completed under Section 143(3) read with Section 147 of the Act assessing total income of INR.24,54,320/- on 19/03/2015. The CIT(A) after making addition of the amount INR.23,64,586/- being 12.5% of the total non-genuine purchases of INR.1,89,16,685/-. Being aggrieved by the order, the Assessee appealed against the order before the CIT(A). The CIT(A) restricted the addition to the extent of 6.5% instead of 12.5% of such purchases. The Hon’ble ITAT further restricted the addition to the extent of 2% of alleged bogus purchases.
4. The Assessing Officer levied penalty under Section 271(1)(c) of the Act holding that the Assessee had furnished inaccurate particulars of income to the extent of 2% of bogus purchases relating in evasion of tax of INR.1,44,633/-. Therefore, the penalty of INR.1,44,633/- being 100% of amount of tax sought to be evaded under Section 271(1)(c) of the Act vide Penalty Order, dated 28/02/2018. In appeal preferred by the Assessee the above penalty was deleted by the CIT(A) holding that since the penalty was levied on the ad-hoc income estimated @ 2% of alleged bogus purchases the same could not be sustained. Being aggrieved, the Revenue has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.
5. We have heard both the sides, given thoughtful consideration to the rival submissions and have perused the material on record including order passed by the authorities below and judicial precedents cited during the course of the hearing.
5.1. There is no dispute as to facts, it is admitted position that the Tribunal had, for the Assessment Year 2009-2010, restricted the addition made in the hands of the Assessee to 2% of alleged bogus 3 Assessment Year 2009-2010 purchases of INR.1,89,16,685/- and penalty of INR.1,44,633/- was levied under Section 271(1)(c) of the Act being 100% of the tax sought to be evaded in respect of the disallowance sustained by the Tribunal.
5.2. We note that the CIT(A) deleted the penalty, inter alia, on the ground that penalty levied on ad-hoc estimated income cannot be sustained. During the course of hearing the Learned Authorised Representative for the Appellant has placed on record the order, dated 03/10/2024, passed by the Co-ordinate Bench of the Tribunal in the case of the Assessee for the Assessment Year 2012-13 and 2011-12 [ITA No.4203 & 4204/Mum/2024], wherein it was held by the Tribunal that penalty levied on gross profit estimated on ad-hoc basis was not justified and could not be sustained. The relevant extract of the aforesaid decision of the Tribunal reads as under: 3. The brief facts of the case are that the assessment for A.Y. 2011-12 was completed on 15/12/2016 under section 143(3) read with section 147 of the Act determining the total income at Rs.56,21,190/- in which addition was made of Rs.5,54,989/- being 5% of the bogus purchases of Rs.1,10,99,786/- to the total income of the assessee. Whereas for A.Y. 2012-13, the assessment was completed under section 143(3) read with section 147 of the Act on 27/03/2015 determining total income at Rs.54,86,900/- in which the purchases from Prime Star of Rs.44,46,600/- and Mayur Exports of Rs.29,91,450/- totaling Rs.74,38,050/- was treated as bogus purchases by rejecting the books of account under section 145(3) of the Act and addition was made of R.5,95,044/- being 8% of the alleged bogus purchases of Rs.74,38,050/-. The assessee filed appeals before the ld. CIT(A). But later on, the appeals were withdrawn. The ld. AO, by invoking the provisions of section 271(1)(c) of the Act, initiated the concealment penalty proceedings by issuance of notice under section 274 read with section 271(1)(c) of the Act. The assessee complied with the notices issued under section 274 read with section 271(1)(c) of the Act. Not satisfied with the explanation submitted by the assessee, the Ld. AO levied penalty under section 271(1)(c) of Rs.1,71,492/- for A.Y. 2011- 12 and Rs. 1,83,870/- for A.Y. 20-12-13 being minimum penalty leviable @100% of the tax sought to be evaded. Aggrieved by the penalty order, the assessee filed appeal before the ld.CIT(A).
4 Assessment Year 2009-2010 The ld.CIT(A) upheld the penalty orders. Being aggrieved on the appeal orders, the assessee filed the present appeals before us.
We heard the rival submissions and considered the documents available in the record. The assessment was completed with an addition @5% of Rs.1,71,492/-on the alleged bogus purchases and accordingly tax was levied. The assessee withdrew the appeal filed before the ld. CIT(A). Accordingly, the penalty was levied on the basis of estimated addition of alleged bogus purchases.
The ld.DR argued and fully relied on the orders of revenue authorities. We find that in our considered view, the entire addition was made on the basis of the estimated addition @5% on the alleged bogus purchases. We respectfully relied on the order of the co-ordinate bench of ITAT-Mumbai in Fancy Diamonds India Pvt Ltd vs. DCIT 5(1)(1), Mumbai in to 963/Mum/2023, date of pronouncement 20/06/2023 The relevant part of the order is reproduced as below: - "6. We heard the rival contentions and perused the record. We noticed earlier that the Assessing Officer has estimated profit on alleged bogus purchases @ 12.5%, which was reduced to 6% by Ld. CIT(A). Admittedly, addition has been made on an estimated basis in all the three years under consideration. The question is whether penalty under Section 271(1)(c) of the Act could be levied on addition made on estimated basis. This question was examined by the co- ordinate bench in assessee's own case and it was held that penalty under Section 271(1)(c) of the Act is not leviable on addition made on estimated basis. For the sake of convenience, we extract below the operative portion of the order passed by the co-ordinate bench in Assessment Year 2013-14:- "9. We have heard the submissions made by rival sides and have examined the orders of the authorities below. Undisputedly, the additions made on account of bogus purchases were partially confirmed by the Tribunal. The assessee failed to discharge its onus in proving genuineness of the purchases and dealers. During assessment proceedings, the addition was made on estimation @ 12.5%. In the first appeal, the addition was restricted to 3% and on further appeal to the Tribunal by the Revenue, the addition was enhanced to 6%.
5 Assessment Year 2009-2010 The entire addition right from assessment stage to the Tribunal was merely on estimations. There is no definite finding on the quantum of concealment of income. It is an accepted legal position that penalty under section 271(1)(c) of the Act levied on additions made merely on estimations is unsustainable.
The Hon'ble Rajasthan High Court in the case of CIT vs. Krishi Tire Retreading and Rubber Industries reported as 360 ITR 580 has held that where addition is made purely on estimate basis, no penalty u/s. 271(1)(c) of the Act is leviable. A similar view has been expressed by Hon'ble Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. reported as 303 ITR 53. The Hon'ble High Court approving the order of Tribunal held that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty u/s. 271(1)(c) of the Act is not leviable. The Hon'ble Gujarat High Court in the case of CIT vs. Subhash Trading Co. Ltd. reported as 221 ITR 110 has taken a similar view in respect of penalty levied u/s. 271(1)(c) of the Act on estimated additions. There are catena of decisions by different High Courts and various Benches of the Tribunal wherein penalty levied u/s. 271(1)(c) of the Act on estimated addition has been held to be unsustainable.
In the result, the impugned order is upheld and the appeal of Revenue is dismissed."
7. Since the facts of the issue under consideration are identical with the facts of the appeal pertaining to Assessment Year 2013-14 decided by the coordinate bench, following the said decision, we hold that the penalty levied under Section 271(1)(c) of the Act is liable to be cancelled in the instant cases since the additions have been made on estimated basis. Accordingly, we set aside the orders passed by the Ld. CIT(A) in all the three years under consideration and direct the Assessing Officer to delete the penalty levied under Section 271(1)(c) of the Act in all the three years under consideration.
In the result, all the three appeals filed by the assessee are allowed."
Therefore, admittedly the Id. AO made an addition on estimated basis. It has been decided in a number of judgments that when 6 Assessment Year 2009-2010 income of assessee was determined on estimation basis, then no penalty under section 271(1)(c) could be imposed for concealment and furnishing inaccurate particulars. The quantification of the addition is admittedly only an estimate. Needless to mention that it is settled principle of law that penalty is not attracted on estimated additions. In that view of the matter, we find no justification imposing penalty for concealment of income or furnishing of inaccurate particulars of income by the assessee. We respectfully relied on the order of the co-ordinate bench in case of Fancy Diamonds India Pvt Ltd (supra). We set aside the impugned appeal order and direct to delete the penalty levied U/s 271(1)(c) of the Act amount to Rs. Rs.1,71,492/-.” (Emphasis Supplied) 6. There is nothing on record to persuade us to take a view different from the view taken by the Tribunal in the case of the Assessee for the Assessment Year 2011-2012 and 2012-2013. Respectfully following the same, we decline to interfere with the order passed by the CIT(A) to this extent, and therefore, Ground No.1, 2 and 3 raised by the Revenue are dismissed. Ground No. 4 is dismissed as being infructuous. Ground No. 5 and 6 are dismissed as being general in nature.
In result, the present appeal preferred by the Revenue is dismissed.