2020 (5) TMI 83 - AT - Income Tax

ITAT Mumbai: No Penalty under Sec 271(1)(c) for Ad-hoc Profit Estimation

The ITAT Mumbai upheld the decision of the Ld.CIT(A) to delete the penalty levied under Section 271(1)(c) of the Income Tax Act. The Tribunal ruled that ... Penalty under Section 271(1)(c) - Estimation/adhoc estimation of income - Concealment of income and furnishing inaccurate particulars - Reliance on third party information from Sales Tax Department - Burden of proof on Revenue for positive concealmentPenalty under Section 271(1)(c) - Estimation/adhoc estimation of income - Concealment of income and furnishing inaccurate particulars - Reliance on third party information from Sales Tax Department - Burden of proof on Revenue for positive concealment - Whether penalty under Section 271(1)(c) could be sustained where the Assessing Officer made additions by estimating the profit element on alleged non genuine purchases on an adhoc basis and without conclusive proof of concealment or inaccurate particulars. - HELD THAT: - The Tribunal held that penalty cannot be imposed where the additions are made on an estimation/adhoc basis. The Assessing Officer estimated the profit element in alleged bogus purchases at 20.71% but did not produce conclusive evidence of concealment or inaccurate particulars; notices to the third parties were unserved and no independent investigation established positive concealment. Reliance solely on information from the Sales Tax Department and on an adhoc estimation does not satisfy the burden on Revenue to demonstrate deliberate concealment. Coordinate Bench and High Court precedents were applied to hold that mere denial of a claim or estimation of income does not attract Section 271(1)(c) absent positive evidence of concealment. [Paras 6, 11, 12]Penalty levied under Section 271(1)(c) was deleted as not sustainable where the assessment addition was based on adhoc estimation without conclusive proof of concealment or inaccurate particulars.Final Conclusion: Revenue's appeal dismissed; the Tribunal upheld the deletion of penalty under Section 271(1)(c) because the impugned addition arose from an adhoc estimation of profit on alleged non genuine purchases and there was no conclusive evidence of deliberate concealment. Issues Involved:1. Justification of deleting penalty levied under Section 271(1)(c) of the Income Tax Act.2. Assessment based on estimate basis and its implications on penalty.Issue-wise Detailed Analysis:1. Justification of Deleting Penalty Levied Under Section 271(1)(c):The Revenue appealed against the order of the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], who had deleted the penalty levied under Section 271(1)(c). The penalty was originally imposed by the Assessing Officer (AO) on the grounds that the assessee had deliberately furnished inaccurate particulars of income and concealed income, as the purchases were deemed non-genuine.The ITAT Mumbai upheld the Ld.CIT(A)'s decision, stating that penalty cannot be levied when an estimation of Gross Profit is made. The Tribunal referred to the case of Shri Deepak Gogri v. Income Tax Officer, where it was held that no penalty is leviable on estimation of profit element on purchases. The Tribunal emphasized that the AO had made an ad-hoc estimation of profit on certain purchases treated as unexplained expenditure, and there was no concealment of income or furnishing of inaccurate particulars since the profit element was determined by way of ad-hoc estimation.2. Assessment Based on Estimate Basis and Its Implications on Penalty:The Tribunal noted that the AO had estimated the profit element in non-genuine purchases at 20.71% based on the Gross Profit shown by the assessee. This estimation was made due to the assessee's inability to produce the parties or establish the movement of goods, and the notices issued to the parties were returned unserved. Despite this, the Tribunal held that penalty cannot be imposed where the additions are made on an estimate basis.The Tribunal cited several precedents to support this view, including:- DCIT v. Manohar Manak Alloys Pvt. Ltd: The AO made an addition on estimated basis due to bogus purchases, but the Tribunal held that penalty cannot be imposed on estimate basis.- Harigopal Singh v. CIT: The Punjab & Haryana High Court held that penalty under Section 271(1)(c) is not attracted where income is assessed on estimate basis and additions are made on that basis.- CIT v. Aero Traders Pvt. Ltd: The Delhi High Court affirmed that estimated rate of profit applied on turnover does not amount to concealment or furnishing inaccurate particulars.In conclusion, the ITAT Mumbai dismissed the Revenue's appeal, affirming that the penalty under Section 271(1)(c) cannot be sustained when the assessment is based on estimation. The Tribunal found no conclusive proof of concealment of income or furnishing inaccurate particulars by the assessee, thus upholding the Ld.CIT(A)'s order to delete the penalty.