HIRARAM PATAJI PATEL,MUMBAI vs. ITO 25(2)(1), MUMBAI

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ITA 4561/MUM/2014Status: DisposedITAT Mumbai03 October 2016AY 2006-074 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO's estimation of profit was based on guesswork without any concrete basis. The failure of creditors to appear did not automatically prove bogus transactions, and no evidence of false transactions was presented.

What were the facts?

The AO rejected the assessee's books of accounts due to lack of proper response from sundry creditors and estimated net profit at 4% of turnover. Penalty proceedings were initiated based on this addition.

What were the issues?

Whether penalty under Section 271(1)(c) can be levied based on an estimated addition without concrete evidence of concealment or furnishing inaccurate particulars.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES “H”, MUMBAI

Before: Shri Joginder Singh, & Shri Ashwani Taneja

For Appellant: Shri Vipul J. Shah (AR)
For Respondent: Shri Abhishek Sharma (DR)

आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Assessee against order of Ld. order of Ld. Commissioner of Income Tax (Appeals)- 35 Mumbai, {(in short ‘CIT(A)’}, dated 12.05.2004 passed against penalty order u/s 271(1)(c) 03.03.2012 for A.Y. 2006-07.

1.

2 Hiraram P. Patel 2. During the course of hearing, arguments were made by Shri Vipul J. Shah, Authorised Representative (AR) on behalf of the Assessee and by Shri Abhishek Sharma, Departmental Representative (DR) on behalf of the Revenue.

3.

In this case, the brief background was that during the course of assessment proceedings it was noted by the AO that assessee was engaged in the business of transportation. During the course of assessment proceeding, the AO issued notice u/s 133(6) to sundry creditors. Since, there was no proper response from the creditors, the AO rejected the books of accounts and estimated the net profit of the assessee at 4% of the total turnover and computed income of the assessee accordingly. Subsequently, the penalty proceedings were initiated and AO levied the penalty on the amount of addition made by the AO. 3.1. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) wherein it was submitted that an appeal against quantum order was not filed only to buy peace of mind. But, there was no concealment of income. It was also submitted that merely because the creditors could not appear before the AO, it would not prove that transactions of the assessee was bogus. It was also argued that addition was made on estimate basis without proving any concealment and therefore, penalty was wrongly levied. But, Ld. CIT(A) did not find force in the submissions of the assessee and upheld the penalty on the ground that since the AO had no other alternative but to 3 Hiraram P. Patel estimate the income therefore, addition was made on estimate basis and therefore, penalty has been rightly levied by the AO.

3.2. Being aggrieved, the assessee filed an appeal before the Tribunal wherein submissions made before the Ld. CIT(A) have been reiterated.

3.3. We have gone through the facts of this case and considered the submissions made by both the sides. It is noted by us that while levying the penalty, the AO was not sure whether it was case of concealment of income or furnishing of inaccurate particulars of income. Further, while making addition in the assessment order, the AO estimated the net profit @ of 4% of the total receipts. The AO did not give any basis much less any scientific or concrete basis to adopt the rate of profit at 4%. Thus, it was a pure exercise of estimation. Further, merely because the creditors did not choose to appear before the AO, it would not ipso facto mean that the transactions of the assessee with these persons were bogus. Nothing has been brought on record in the penalty proceedings to show that the transactions of the assessee were false. The case of the assessee was not disproved at any stage. The income of the assessee has been computed on the basis of pure guess work, it is certainly not a case of levy of penalty. Under these circumstances, we direct the AO to delete the penalty.

4 Hiraram P. Patel 4. In the result, the appeal filed by the Assessee is treated as partly allowed. Order pronounced in the open court on 3rd October, 2016.

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