Loading judgment…
Facts
The assessee's appeals relate to assessment years 2009-10 and 2010-11, challenging penalties levied under section 271(1)(c) based on additions made on an estimated basis. The additions were for purchases, with a net profit rate of 12.5% applied, which was later restricted by the CIT(A) to 4.5%.
Held
The Tribunal held that penalty under section 271(1)(c) cannot be levied when additions are sustained purely on an estimated basis and when the AO fails to prove concealment of income or furnishing of inaccurate particulars. The disallowance of purchases on an ad hoc/estimated basis does not equate to furnishing inaccurate particulars.
Key Issues
Whether penalty under Section 271(1)(c) can be levied on additions made on an estimated basis when the assessee has not concealed income or furnished inaccurate particulars.
Sections Cited
271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JODHPUR BENCH (Virtual
Before: DR. MITHA LAL MEENA, HONBLE & SHRI NARINDER KUMAR, HONBLE
These two appeals by the assessee are directed against the separate order of National Faceless Appeal Central, Delhi (hereinafter referred to as "NFAC/CIT(A)"] in respect of assessment year 2009-10 and 2010-11 challenging therein confirmation of levy of penalty u/s 271(1)(c) of Rs. 67200/- and 67200/- respectivelyon an addition made purely on acestimate basis.
We have heard both the sides, perused the record file and case law cited before us. Admittedly, the source of purchase made fron the alleged firm were duly recorded in the books of the assesseeand the sales related to thesepurchaseswere certified and additional income has been added by the AO on the basis of estimated net profit rate of 12.5% on theses purchases recorded in the trading account which was although restricted to the net profit rate of 4.5% by the Ld. CIT(A). Further, the assessee has paid VAT on all these bills against these purchases, and the purchase billsare recorded in the books along with the related sales. Thus, the assessee has neither concealed any income nor furnished any wrong facts. Meaning thereby that the Ld. AO has imposed penalty only on estimated basis based on 3rd party information received with rebutting the material evidence furnished on record by the assessee. We are of the view, that where the addition is sustained on the estimated basis no penalty u/s 271(1)(c) of the Act can be levied.
It is evident from the record that the AO failed to prove the concealment of income or furnishing of inaccurate particulars of incomeon part of the assessee and therefore, it is unjustified to levy of penalty of Rs. 67,200/- u/s 271(1)(C) on the estimated basiswith respect to assessment year 2009-10. Our view gets supports from the decision given by the ITAT MUM Bench, inthe case of M/s Shri Poonam k. prajapati Vs. ITO ward 19(2)(5) Mumbai, ITA No. 1953/mum/2022 where it was held that - "We find the A.O has made ad hoc disallowance of bogus purchases and has accepted the sales in the books ofaccounts. On appeal, the CIT(A) has restricted the addition considering the profit element @ 25% and on further appeal the Honble Tribunal has restricted the addition to the extent of 9%. We are of the opinion, that where the addition is sustained on the estimated basis no penalty u/s 271(1)(c) of the Act can be levied. The disallowance of purchases on adhoc/estimated basis does not tantamount to furnishing inaccurate particulars ofincome under the provisions ofSection 271(1) (c) ofthe Act. The A.O. has not doubted the sales and made disallowance of bogus purchases, and we rely on the ratio of the Honorable Juri ictional High Court in the case of M/s Nikunj Eximp Enterprises Vs CIT (W.P.No 2860 dated 18-06-2014). Further the assessing officer made an addition based on the information received from Sales tax department Maharashtra. Further we are ofthe opinion that once the revenue accepts that penalty is levied on the basis of information from the outside agency/ department, the penalty is not sustained. Accordingly, we considering the facts, circumstances andjudicial decisions set aside the order ofthe CIT(A) and direct the assessing officer to delete the penalty and allow the grounds of appeal infavour ofthe assessee.
On similar facts, recently theITAT MUM Bench, in the case of M/S. Om Sai Traders Vs. ITO ward -3(1) Thane, ITA No.6023/Mum/2024Assessment Year &2011-12 :2010-11 has held as under: "After hearing both the parties and on perusal of the material placed on record, we find that the source of purchases made from the alleged hawala parties are from the books and corresponding sales from such purchases has not been disturbed, Once the purchases are reflected in the trading account and addition has been made by applying some higher GP rate of 12.5% on alleged bogus purchases and that to be on estimated basis, then no penalty can be levied u/s.271(1)(c). Further, in A. Y. 2009-10 it has been stated that on similar application of GP rate on bogus purchases, penalty initiated by the Id. AO was dropped by him. In any case, it cannot be a case of furnishing of inaccurate particulars of income as held bythe Id. AO, because all the particulars of purchases have been shown in the books alongwith corresponding sale. Accordingly, penalty levied by the Id. AO and sustained by the Id. CIT (A) is deleted in both the appeals.
In the present case, all the particulars of purchases have been shown in the books alongwith corresponding sale and addition has been made by too applying higher GP rate of 12.5% on alleged bogus purchases and that to be on estimated basis, then no penalty can be levied u/s.271(1)(c).In view of that matter, the impugned order is held to be infirm and perverse to the facts on record and bad in law.
Considering the factual Matrix and judicial precedents, the penalty levied Rs. 67200/- by the Id. AO and sustained by the Id. CIT (A) is deleted in the appealia ITA No. 598/Jodh/2024. 7. ITA No. 599/Jodh/2024Assessment Year: 2010-11 has The assessee vide application dated 13/05/2025 requested to withdraw been this ap appeal. wherein it was state that"in "in the meantime my demand for the A.Y. 2010-11 has been extinguished by the Ld. AO on the Income Tax portal in compliance with the budget provisions of the Finance Department, now the penalty in the A.Y. 2010-11 has been Nil.So, the purpose for which I filed the appeal before the Hon'ble ITAT has been resolved, so I do not need to continue
the appeal So, I want to withdraw the appeal filed before the Hon'ble ITATPlease pass an order to allow me to withdraw the above appeal".
1 The learned JCIT (DR) haslob has objection to the said request of the Assessee. no 7.2 Accordingly, we accept the request of the assessee as genuine, and as such the instant appeal is allowed to be withdrawn.
In the result, the appeal of the assessee in ITA No. 598/Jodh/2024 Assessment Year: 2009-10 is allowed and ITA No. 599/Jodh/2024 Assessment Year: 2010-11 is dismissed as withdrawn. having been Order pronounced on 29/09/2025 under Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963. (NARINDER KUMAR) JUDICIAL MEMBER Dated: 29/09/2025 copies to: (1) The appellant. (2) The respondent. (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By Oder