Appeal allowed, penalty under Section 271(1)(c) deleted due to lack of concrete evidence.

The appeal was allowed, and the penalty levied under Section 271(1)(c) was directed to be deleted as the additions were based on ad-hoc estimations without concrete evidence of concealment or inaccurate particulars.

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Issues Involved:
1. Validity of penalty order under Section 271(1)(c) of the Income Tax Act.
2. Merits of the penalty imposed for debatable disallowance of purchases.

Detailed Analysis:

1. Validity of Penalty Order under Section 271(1)(c):
The assessee challenged the validity of the penalty order dated 27/11/2019 under Section 271(1)(c) of the Income Tax Act, arguing that the show cause notice issued on 19/03/2016 was invalid. The notice was in a standard computer-generated form without striking out the inapplicable words and provisions, thereby depriving the assessee of the opportunity to present his case effectively. However, this ground was not pressed by the assessee during the hearing and was subsequently dismissed.

2. Merits of the Penalty Imposed for Debatable Disallowance of Purchases:
The assessee, engaged in trading ferrous, non-ferrous, and basic metals, filed a return declaring an income of Rs. 6,03,000 for A.Y. 2009-10. The assessment was reopened, and the income was reassessed at Rs. 18,02,030. The Assessing Officer (AO) treated purchases amounting to Rs. 3,83,07,709 as non-genuine based on information from the DGIT (Investigation), Mumbai, and estimated a profit element of 3.13%, bringing Rs. 11,99,031 to tax. The CIT(A) enhanced this to 5%, increasing the income to Rs. 19,15,386. The ITAT later restricted the addition to 2% of the alleged bogus purchases.

The AO initiated penalty proceedings and levied a penalty of Rs. 7,66,154 under Section 271(1)(c), claiming that the assessee furnished inaccurate particulars of income and concealed income. The CIT(A) sustained this penalty. The assessee appealed, arguing that the penalty was based on an ad-hoc estimation of profit from alleged bogus purchases.

The Tribunal noted that penalties cannot be levied when income is determined based on ad-hoc estimation. The profit element on the alleged bogus purchases was estimated on an ad-hoc basis at different rates by the AO, CIT(A), and ITAT. The Tribunal cited several cases, including Shri Deepak Gogri v. Income Tax Officer and DCIT v. Manohar Manak Alloys Pvt. Ltd., where penalties were not sustained when additions were made on an estimated basis.

In the case of Shri Deepak Gogri, the Tribunal held that there was no concealment of income or furnishing of inaccurate particulars, as the profit element was determined by ad-hoc estimation. Similarly, in DCIT v. Manohar Manak Alloys Pvt. Ltd., the Tribunal found that penalties could not be imposed where additions were made on an estimated basis without concrete evidence of bogus purchases.

Further, the Hon'ble Punjab & Haryana High Court in Harigopal Singh v. CIT held that penalty under Section 271(1)(c) is not attracted when income is assessed on an estimate basis. The Hon'ble Delhi High Court in CIT v. Aero Traders Pvt. Ltd. also affirmed that estimated profit rates do not amount to concealment or furnishing inaccurate particulars.

In this case, the Tribunal concluded that the AO and CIT(A) had only estimated the gross profit on alleged non-genuine purchases without conclusive proof of concealment or furnishing inaccurate particulars. Therefore, the Tribunal directed the AO to delete the penalty levied under Section 271(1)(c) for the assessment year under consideration.

Conclusion:
The appeal of the assessee was allowed, and the penalty levied under Section 271(1)(c) was directed to be deleted, as the additions were based on ad-hoc estimations without concrete evidence of concealment or inaccurate particulars.

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