2020 (8) TMI 709 - AT - Income Tax

Tribunal Dismisses Revenue's Appeal; Penalty for Adhoc Gross Profit Estimation Deleted Due to Lack of Evidence.

ACIT – Circle – 6 (2) (1), Mumbai Versus M/s. Colo Color Pvt. Ltd.

The Tribunal upheld the Ld.CIT(A)'s decision to delete the penalty under Section 271(1)(c) of the Income Tax Act, as the penalty was based on an adhoc ... Penalty levied u/s. 271(1)(c) - Estimation of income - bogus purchases - adhoc estimation was made by the Assessing Officer restricting the profit element in the purchases @12.5% - HELD THAT:- As decided in Shri Deepak Gogri [2017 (11) TMI 1857 - ITAT MUMBAI] there is no concealment of income or furnishing of inaccurate particulars as the profit element was determined by way of adhoc estimation. Coming to the interest, the assessee furnished complete details in the return of income and made a claim and simply because the claim is denied and cannot lead to furnishing of inaccurate particulars or concealment of income. No allegation by Assessing Officer that the assessee failed to disclose the particulars relating to its claim in the return of income. Delete the penalty levied u/s. 271(1)(c). Similar view has been taken by the Hon'ble Delhi High Court in the case of CIT v. Aero Traders Pvt. Ltd. [2010 (1) TMI 32 - DELHI HIGH COURT] wherein the Hon'ble High Court affirmed the order of the Tribunal in holding that estimated rate of profit applied on the turnover of the assessee does not amount to concealment or furnishing inaccurate particulars. In the case on hand the Assessing Officer has only estimated the Gross Profit on the alleged non-genuine purchases without there being any conclusive proof of concealment of income or furnishing inaccurate particulars of such income. Thus, we do not observe any infirmity in the order passed by the Ld.CIT(A) in deleting the penalty u/s. 271(1)(c) - Decided in favour of assessee. Issues Involved:1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.2. Assessment of income based on non-genuine purchases.3. Estimation of profit element on non-genuine purchases.Issue-wise Detailed Analysis:1. Deletion of Penalty Levied under Section 271(1)(c) of the Income Tax Act:The appeal by the Revenue was against the order of the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], which deleted the penalty levied under Section 271(1)(c) of the Act. The penalty was initially imposed by the Assessing Officer (AO) on the grounds that the assessee furnished inaccurate particulars of income and concealed income. The Ld.CIT(A) deleted the penalty, reasoning that the disallowance was made by estimating the Gross Profit on the purchases. The Tribunal upheld this view, stating that penalty cannot be levied when an adhoc estimation is made. The Tribunal cited several precedents, including the case of Shri Deepak Gogri v. Income Tax Officer, where it was held that no penalty is leviable when the profit element is determined by way of adhoc estimation.2. Assessment of Income Based on Non-Genuine Purchases:The assessee, engaged in the business of operating a photo studio and trading in photographic material, had its assessment reopened under Section 147 of the Act. The AO treated purchases amounting to Rs. 59,26,206/- as non-genuine based on information from the Sales Tax Department, Mumbai, which indicated that the assessee had received accommodation entries without making actual purchases. The AO estimated the profit element from these non-genuine purchases at 12.5% and brought to tax an amount of Rs. 7,40,779/-. The assessee accepted this estimation and did not appeal further.3. Estimation of Profit Element on Non-Genuine Purchases:The AO estimated the profit element on the non-genuine purchases at 12.5% based on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth. The Tribunal observed that the AO made an adhoc estimation of profit on certain purchases treated as unexplained expenditure and did not doubt the sales made by the assessee from these purchases. The Tribunal emphasized that there was no concealment of income or furnishing of inaccurate particulars since the profit element was determined by way of adhoc estimation. It cited multiple precedents, including the case of DCIT v. Manohar Manak, Alloys Pvt. Ltd, where it was held that penalty cannot be imposed where additions are made on an estimate basis.The Tribunal further referenced the Hon'ble Punjab & Haryana High Court in the case of Harigopal Singh v. CIT, which held that provisions of Section 271(1)(c) are not attracted to cases where income is assessed on an estimate basis and additions are made on that basis. The Hon'ble Delhi High Court in the case of CIT v. Aero Traders Pvt. Ltd. also affirmed that estimated rate of profit applied on the turnover does not amount to concealment or furnishing inaccurate particulars.Conclusion:The Tribunal concluded that the AO only estimated the Gross Profit on the alleged non-genuine purchases without any conclusive proof of concealment of income or furnishing inaccurate particulars. Therefore, it upheld the order of the Ld.CIT(A) in deleting the penalty under Section 271(1)(c) of the Act and dismissed the appeal of the Revenue. The pronouncement was delayed due to the COVID-19 pandemic and was made as per Rule 34(4) of ITAT Rules.