2021 (3) TMI 659 - AT - Income Tax

Tribunal Upholds Deletion of Penalty for Estimated Income

The tribunal upheld the deletion of the penalty levied under Section 271(1)(c) of the Income Tax Act, emphasizing that penalty cannot be imposed on income ... Penalty levied u/s. 271(1)(c) - Estimation of income on bogus purchases - HELD THAT:- It is a settled position of law that penalty cannot be levied when an ad hoc estimation is made. In this case an ad hoc estimation was made by the Assessing Officer restricting the profit element in the purchases @ 12.5%. 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. Ld. CIT(A) following various judicial pronouncements including the decision of Hon'ble Punjab & Haryana High Court in the case of Harigopal Singh v. CIT [2002 (8) TMI 65 - PUNJAB AND HARYANA HIGH COURT] deleted the penalty levied by the Assessing Officer. 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. Estimation of profit element from non-genuine purchases.3. Applicability of penalty on income assessed based on estimation.Issue-wise Detailed Analysis:1. Deletion of Penalty Levied under Section 271(1)(c) of the Income Tax Act:The appeal was filed by the revenue against the order of the Ld. Commissioner of Income-tax (Appeals)-20, Mumbai, which deleted the penalty levied under Section 271(1)(c) of the Income Tax Act by the Assessing Officer. The penalty was initially imposed on the grounds that the assessee furnished inaccurate particulars of income. The Ld. CIT(A) deleted the penalty, reasoning that the disallowance was based on an estimation of gross profit on the purchases. The tribunal upheld this view, citing that penalty cannot be levied when an ad hoc estimation is made.2. Estimation of Profit Element from Non-genuine Purchases:The assessee, engaged in the business of repairs and maintenance of automatic control machine electronic systems, filed a return declaring an income of Rs. 14,98,400/-. The assessment was reopened and completed, determining the income at Rs. 17,86,790/-. The Assessing Officer treated purchases of Rs. 23,07,115/- as non-genuine based on information from the DGIT (Inv.), Mumbai, and estimated the profit element from these non-genuine purchases at 12.5%, bringing Rs. 2,88,389/- to tax. The assessee accepted this estimation and did not appeal further. The tribunal noted that the estimation of the profit element was ad hoc, and hence, penalty under Section 271(1)(c) was not applicable.3. Applicability of Penalty on Income Assessed Based on Estimation:The tribunal referred to several precedents where it was held that penalty cannot be imposed when income is assessed based on estimation. The tribunal cited cases such as Shri Deepak Gogri v. Income Tax Officer, where it was held that there is no concealment of income or furnishing of inaccurate particulars when profit elements are determined by way of ad hoc estimation. Similarly, in DCIT v. Manohar Manak, Alloys Pvt. Ltd., it was held that penalty cannot be imposed where additions are made on an estimated basis without concrete evidence of bogus purchases. The tribunal also referenced the Hon’ble Punjab & Haryana High Court in 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.The tribunal concluded that the Assessing Officer had only estimated the gross profit on alleged non-genuine purchases without conclusive proof of concealment or furnishing inaccurate particulars. Therefore, the deletion of the penalty by the Ld. CIT(A) was upheld, and the appeal of the revenue was dismissed.Conclusion:The appeal by the revenue was dismissed, and the tribunal upheld the deletion of the penalty levied under Section 271(1)(c) of the Income Tax Act, emphasizing that penalty cannot be imposed on income assessed based on estimation. The tribunal reinforced that ad hoc estimations do not constitute concealment of income or furnishing inaccurate particulars.