Penalty under Section 271(1)(c) deleted for bogus purchases due to defective notice and estimation-based addition

ITAT Mumbai deleted penalty under Section 271(1)(c) imposed on assessee for bogus purchases. The penalty notice under Section 274 read with 271 was defective as it failed to specify whether penalty was for concealment of income or furnishing inaccurate particulars. Additionally, since the addition in quantum proceedings was made on estimation basis (12.5% of alleged bogus purchases), penalty under Section 271(1)(c) could not be sustained. The Tribunal relied on Mohammed Farhan A Shaikh judgment and Orient Fabritech Pvt. Ltd. precedent to rule in favor of the assessee.

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Issues Involved:
The judgment involves the challenge to a penalty order u/s 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2009-10 based on alleged inaccurate particulars of income and the validity of the penalty notice issued without specifying the grounds for penalty.

Summary:
The Appellant challenged the penalty order u/s 271(1)(c) issued by the Ld. CIT(A) for the Assessment Year 2009-10, which was confirmed by the CIT(A). The Appellant contended that the penalty notice was defective as it did not specify the grounds for penalty and that the addition leading to penalty was based on estimation. The Tribunal noted that the penalty notice was indeed defective as it did not specify the charge against the Appellant. Additionally, the Tribunal observed that the addition was made on an estimation basis, leading to the conclusion that no penalty could be levied under section 271(1)(c) in such circumstances.

The Tribunal referred to a Full Bench decision of the Bombay High Court which held that a defect in the notice, such as not striking off irrelevant parts, would vitiate the penalty proceedings. Citing this precedent, the Tribunal found that the penalty notice issued to the Appellant was defective and did not inform the Appellant about the specific charge. The Tribunal also highlighted a previous case where penalty was deleted when additions were made on estimation basis, supporting the Appellant's argument in the present case.

Based on the above analysis, the Tribunal deleted the penalty levied under Section 271(1)(c) of the Act, allowing the grounds raised by the Appellant. The appeal by the Assessee was allowed, and the penalty was set aside.

This judgment emphasizes the importance of a valid penalty notice specifying the grounds for penalty and the inapplicability of penalty under section 271(1)(c) in cases where additions are made on estimation basis.

Order pronounced on 05.12.2023.

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