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Facts
The assessee's appeal is against the order of the Ld.CIT(A) upholding a penalty levied under section 271(1)(c) of the Income-tax Act, 1961. The original assessment order involved an addition based on estimated profit on bogus purchases. The Ld.CIT(A) reduced the profit percentage and the addition amount but confirmed the penalty.
Held
The Tribunal held that penalty under section 271(1)(c) of the Act cannot be levied on additions made purely on an estimated basis, citing various High Court decisions and a coordinate bench ruling. The addition in this case was based on estimation.
Key Issues
Whether penalty under Section 271(1)(c) of the Act is leviable on additions made on an estimated basis.
Sections Cited
271(1)(c), 250, 143(3), 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI PRASHANT MAHARISHI & SHRI ANIKESH BANERJEE
Instant appeal of the assessee is preferred against the order of the Learned National Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year2009-10, date of order23.01.2024.The impugned order was emanated from the order of the Ld. Income-tax Officer, Ward 19(1)(1), Mumbai(in short, ‘the
Alpa Rajesh Desai A.O.’) passed under section271(1)(c) r.w.s. 274of the Act date of order29/02/2019.
The assessee has taken the following grounds:-
“1. On the facts and in the circumstances of the case and in law, the CIT(A), hereinafter referred to as the Ld.CIT(A) has levied Penalty u/s. 271(1)(c) of Rs.26,076/-. The penalty may please be deleted. 2. The Assessee craves leave to add, alter, amend or drop any Grounds of Appeal at the time of the Appeal Proceedings.”
3. Brief facts of the case are that the assessment was framed under section 143(3) / 147 date of order 16/03/2015 with an addition @ 12.5% on purchase value of Rs.18,75,349/- as the said purchases is taken as bogus purchase and the profit is estimated amount to Rs.2,34,419/-. The assessee filed an appeal before the ld. CIT(A) and ld. CIT(A) passed an order U/s 250 of the Act and reduced the gross profit @4.50% on bogus purchase as the assessee already declared the gross profit. So, the addition is restricted to Rs. 84,390/- which is @4.50% on bogus purchase amount to Rs. 18,75,349/-. The Ld.AO initiated the penalty proceeding U/s 271(1)(c) r.w.s. 274 of the Act and the penalty is levied amount to Rs.26,076/-i.e.,@100% of tax sought to be evaded. The aggrieved assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) upheld the penalty order and confirmed the penalty. Being aggrieved on appeal order the assessee filed an appeal before us.
The Ld.AR argued that the addition was made on the basis of estimation and the Ld. CIT(A) also reduced the percentage of profit for addition of income on the unexplained purchase.
Alpa Rajesh Desai 5. The Ld. DR fully relied on the order of the revenue authorities.
We heard the rival submission and considered the documents available in the record. The entire addition was made on the basis of the gross profit percentage on bogus purchases. The ld. CIT(A) reduced the percentage of addition of gross profit from @12.5% to @4.5%& restricted the addition amount to Rs.84,390/- and further, the penalty is levied @100% on tax sought to be evaded i.e. amount to Rs.26,076/- U/s 271(1)(c) of the Act. The Ld.AR relied on the order of the co-ordinate bench of Mumbai Fancy Diamonds India Pvt. Ltd vs. DCIT 5(1)(1), Mumbai in to 963/Mum/2023,date of pronouncement 20/06/2023The 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%. The entire addition right from assessment stage to the Tribunal was merely on estimations. There is no definite finding on the quantum of concealment Alpa Rajesh Desai 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 Tyre 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 Ho’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.
8. In the result, all the three appeals filed by the assessee are allowed.”
In our considered view the penalty on the basis of the estimated addition cannot be sustained. We respectfully relied on the order of the co-ordinate bench in case of Fancy Diamonds India Pvt. Ltd.(supra). We set aside the Alpa Rajesh Desai impugned appeal order and direct to delete the penalty levied U/s 271(1)(c) of the Act amount to Rs. 26.076/-.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 22nd day of July, 2024.