Tribunal rules penalties deleted under Income Tax Act for A.Y. 2009-10, 2010-11

The Tribunal upheld the Commissioner of Income-tax (Appeals)' decision to delete penalties levied under Section 271(1)(c) of the Income Tax Act for A.Y. 2009-10 and 2010-11. The Tribunal ruled that penalties cannot be imposed when income is determined by ad hoc estimation without concrete evidence, citing precedents where penalty provisions were not applicable in similar cases. The Tribunal found no evidence of concealment or furnishing inaccurate particulars by the assessee, leading to the dismissal of the revenue's appeals and confirmation of the penalty deletions.

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Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act by the Commissioner of Income-tax (Appeals).
2. Treatment of purchases as non-genuine by the Assessing Officer.
3. Estimation of profit element from non-genuine purchases.
4. Applicability of penalty when income is determined by ad hoc estimation.

Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c):
The appeals were filed by the revenue against the orders of the Commissioner of Income-tax (Appeals) [CIT(A)], who deleted the penalty levied under Section 271(1)(c) of the Income Tax Act for the Assessment Years (A.Y.) 2009-10 and 2010-11. The CIT(A) had deleted the penalty on the grounds that the disallowance was based on an estimation of Gross Profit on purchases.

2. Treatment of Purchases as Non-Genuine:
The Assessing Officer (AO) treated purchases amounting to Rs. 8,54,724 and Rs. 3,73,907 from M/s. Naman Enterprises and M/s. Bhora Metal Industries as non-genuine for A.Y. 2009-10 and A.Y. 2010-11 respectively. This was based on information received from the Directorate General of Income Tax (Investigation), Mumbai, indicating that the assessee had received accommodation entries without making actual purchases but instead made purchases only in the gray market. The AO concluded this as the assessee could not produce the parties or establish the movement of goods.

3. Estimation of Profit Element from Non-Genuine Purchases:
The AO estimated the profit element from the non-genuine purchases at 25% and brought to tax amounts of Rs. 2,13,681 and Rs. 93,477 for A.Y. 2009-10 and A.Y. 2010-11 respectively. The assessee accepted this estimation and did not prefer an appeal against it. However, the AO initiated penalty proceedings and levied penalties of Rs. 89,541 and Rs. 29,812 for the respective assessment years under Section 271(1)(c), claiming that the assessee furnished inaccurate particulars of income and concealed income.

4. Applicability of Penalty When Income is Determined by Ad Hoc Estimation:
The Tribunal observed that it is a settled position of law that penalty cannot be levied when an ad hoc estimation 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 when the profit element is determined by way of ad hoc estimation. The Tribunal also cited the case of DCIT v. Manohar Manak, Alloys Pvt. Ltd., where it was held that penalty cannot be imposed when additions are made on an estimated basis without concrete evidence of bogus purchases.

Further, the Tribunal referenced the Hon'ble Punjab & Haryana High Court's decision in Harigopal Singh v. CIT, which held that penalty provisions under Section 271(1)(c) are not attracted when income is assessed on an estimate basis and additions are made on that basis. The Hon'ble Delhi High Court in CIT v. Aero Traders Pvt. Ltd. also affirmed that estimated rates of profit applied on the turnover do not amount to concealment or furnishing inaccurate particulars.

In conclusion, the Tribunal found no conclusive proof of concealment of income or furnishing inaccurate particulars by the assessee. The orders of the CIT(A) in deleting the penalty were upheld, and the appeals of the revenue were dismissed.

Final Judgment:
The appeals of the revenue were dismissed, and the order pronounced on 05.03.2021 confirmed the deletion of the penalties levied under Section 271(1)(c) of the Income Tax Act.

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