Section 271(1)(c) penalty cannot be levied when income addition made on estimation basis for bogus purchases

The ITAT Surat held that penalty under section 271(1)(c) cannot be levied when income addition is made on estimation basis for bogus purchases. The tribunal established that penalty is not leviable on additions restricted to estimation basis, following precedents from previous cases. The court ruled in favor of the assessee, determining that the penalty under section 271(1)(c) would not survive when the disallowance was made purely on estimation grounds rather than for concealment of income or furnishing inaccurate particulars.

---

---

Issues Involved:
The appeal concerns the levy of penalty u/s 271(1)(c) of the Income Tax Act for the Assessment Year 2007-08 based on alleged bogus purchases and the initiation of penalty without specifying the charge of 'Concealment of income' or 'Furnishing inaccurate particulars of income'.

Levy of Penalty u/s 271(1)(c):
The appeal challenges the confirmation of penalty u/s 271(1)(c) by the ld. CIT(A) without specifying the nature of the penalty charge in the notice issued, contending that penalty cannot be levied on income determined on estimation basis. The appellant argued that all material facts were disclosed, and the disputed purchase was recorded in audited books with documentary evidence. The Tribunal noted that the addition in the quantum assessment was restricted to 5% of the purchases shown, which was upheld on estimation basis. Citing precedent cases, the Tribunal held that no penalty is leviable on additions made on estimation basis, leading to the deletion of the penalty levied by the Assessing Officer.

Initiation of Penalty Proceedings:
The appellant raised legal issues regarding the initiation of penalty proceedings, arguing that the Assessing Officer did not initiate the penalty in the assessment order but only made a reference for issuing notice u/s 274 r.w.s. 271(1)(c) of the Act. The appellant contended that the notice itself was invalid for not specifying the specific limb of the penalty charge. The Tribunal agreed with the appellant's submissions, finding the penalty order unsustainable due to the lack of proper initiation in the assessment order and the invalidity of the notice issued.

Conclusion:
The Tribunal allowed the appeal of the assessee, emphasizing that no penalty is leviable on additions restricted on estimation basis. The decision was based on the principle established in previous cases, leading to the deletion of the penalty imposed by the Assessing Officer. As a result, the appeal was allowed in favor of the assessee.

---