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Assessee represented by Shri Parin Shah, C.A. Department represented by Shri Vinod Kumar, Sr. DR Date of Institution of Appeal 19/09/2023 Date of hearing 06/11/2023 Date of pronouncement 06/11/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A)) dated 28/07/2023 in confirming the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 (in short, the Act) for the Assessment Year (AY) 2009-10. The assessee has raised sole ground of appeal which reads as under: “1. The ld. NFAC/CIT(A) erred in law and on facts in imposing a penalty u/s 271(1)(c) of the Act of Rs. 2,11,310/-.”
2. Rival submissions of both the parties have been heard and record perused. The learned Authorised Representative (ld. AR) of the assessee submits that while passing the assessment order, the Assessing Officer Thakorbhai & Company Vs ITO made addition on account of bogus purchases. The Assessing Officer disallowed 50% of such purchases of Rs. 77,03,224/- thereby made addition of Rs. 38,51,612/-.
3. On appeal before the ld. CIT(A), disallowance was restricted to 5% of gross turnover of Rs. 1.36 crore. The Assessing Officer levied penalty on such disallowances vide order dated 29/01/2022. The Assessing Officer levied penalty of Rs. 2,11,310/-. The ld. AR of the assessee submits that it is settled position under law that no penalty is leviable on estimated additions. To support his view, the ld. AR of the assessee relied on the following case laws: (i) CIT Vs Subhash Trading Co. (1996) 86 Taxman 30 (Guj) (ii) Navjivan Oil Mills Vs CIT (2002) 124 Taxman 392 (Guj) (iii) CIT Vs Valimkbhai H patel (2006) 280 ITR 487 (Guj) (iv) ITO Vs Bombaywala Readymade Stores (2015) 55 taxmann.com 258 (Guj) (v) CIT Vs Hariyana Textile Industries P ltd. Tax Appeal No. 741 of 2009 dated 28/06/2016 (vi) I-Serve Systems Pvt. Ltd. Vs DCIT order dated 02/02/2022 (vii) Anil Abhubhai Odedara Vs ITO (2020) 117 taxmann.com 490 (Rajkot-Trib)
4. On the other hand, the learned Senior Departmental Representative (ld. Sr.DR) for the revenue supported the orders of the lower authorities. The ld. Sr.DR for the revenue submits that the disallowance was not made on estimated basis rather it was restricted to the profit element Thakorbhai & Company Vs ITO embedded in such purchases. The penalty was rightly levied by assessing officer, on such disallowances.
I have considered the rival submissions of both the parties and perused the record carefully. I find that the Assessing Officer while passing the assessment order, noted that the has shown purchases in cash aggregating to Rs. 77,03,224/-. The Assessing Officer after giving show cause notice, disallowed 50% of such purchases. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) restricted the addition to the extent of 5%, however, 5% was applied on total turnover. On receipt of order of ld. CIT(A) in quantum assessment, the Assessing Officer levied penalty of Rs. 2,11,310/-. I find that the addition was certainly bases on estimation made by the Assessing Officer and modified by the ld. CIT(A). I find that the Hon'ble Jurisdictional High Court in the case of ITO Vs Bombaywala Readymade Stores (supra) held that “whether since no income had been filed by assessee and income was assessed on estimate basis by revenue, no penalty under Section 271(1)(c) could be levied for concealment of income.” In view of the aforesaid factual and legal position, I find that no penalty is leviable on the assessee, when the addition on account of impugned purchases was estimated merely on the basis of estimation, therefore, I direct to delete the penalty levied Thakorbhai & Company Vs ITO under Section 271(1)(c) of the Act. In the result, ground of appeal
raised by the assessee is allowed.
6. In the result, this appeal of assessee is allowed. Order announced in open court on 06th November, 2023.