2021 (4) TMI 484 - AT - Income Tax

Tribunal affirms no penalties on ad hoc income estimations

Income Tax Officer - 32 (1) (5) Mumbai Versus Empee Engineering Corporation

The Tribunal upheld the decision of the CIT(A) to delete penalties imposed under Section 271(1)(c) of the Income Tax Act for Assessment Years 2009-10 and ... Penalty levied u/s. 271(1)((c) - estimation of income on bogus purchases - CIT(A) restricted the addition GP @ 14.33% and 12.63% for the A.Y. 2009-10 and A.Y. 2010-11 respectively - HELD THAT:- As held 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 both these appeals 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) of the Act levied by the Assessing Officer for both the Assessment Years. Grounds raised by the revenue are rejected. Issues Involved:1. Legitimacy of penalty levied under Section 271(1)(c) of the Income Tax Act.2. Treatment of income estimation on alleged bogus purchases.3. Applicability of penalty in cases of ad hoc estimation of Gross Profit.Detailed Analysis:1. Legitimacy of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:The appeals were filed by the revenue against the orders of the Commissioner of Income-tax (Appeals) [CIT(A)], who had deleted the penalties levied under Section 271(1)(c) of the Income Tax Act for Assessment Years (A.Y.) 2009-10 and 2010-11. The penalties were initially imposed by the Assessing Officer (AO) on the grounds that the assessee had furnished inaccurate particulars of income and concealed income. However, the CIT(A) deleted the penalties, reasoning that the disallowance was based on an estimation of Gross Profit on purchases, not on concrete evidence of concealment.2. Treatment of Income Estimation on Alleged Bogus Purchases:The assessee, engaged in the business of metal flanges, had its assessments reopened under Section 147 of the Act, leading to additions of Rs. 1,68,59,313/- and Rs. 1,16,81,990/- for A.Y. 2009-10 and 2010-11, respectively. The CIT(A) restricted these additions by estimating the Gross Profit (GP) at 14.33% and 12.63% for the respective assessment years. Upon further appeal, the ITAT reduced the addition to 10% of the alleged bogus purchases. The AO then initiated penalty proceedings under Section 271(1)(c), which were subsequently deleted by the CIT(A) on the grounds that the additions were based on ad hoc GP estimations.3. Applicability of Penalty in Cases of Ad Hoc Estimation of Gross Profit:The Tribunal consistently held that penalties under Section 271(1)(c) are not applicable when income is determined based on ad hoc estimations. In this case, the penalties were levied on the basis of estimated GP on alleged bogus purchases. The Tribunal cited various precedents, including the case of Shri Deepak Gogri v. Income Tax Officer and DCIT v. Manohar Manak, Alloys Pvt. Ltd., where it was held that penalties cannot be imposed when additions are made purely on an estimated basis without concrete evidence of concealment.Precedents and Legal Principles:- Shri Deepak Gogri v. Income Tax Officer: The Tribunal observed that the AO made an ad hoc estimation of profit on certain purchases treated as unexplained expenditure. Since the AO did not doubt the sales made from such purchases, there was no concealment of income or furnishing of inaccurate particulars.- DCIT v. Manohar Manak, Alloys Pvt. Ltd.: The Tribunal found that the AO made an addition on an estimated basis without concrete evidence of bogus purchases. It was held that penalties cannot be imposed where additions are based on estimates.- Harigopal Singh v. CIT: The Punjab & Haryana High Court held that penalties under Section 271(1)(c) are not attracted when income is assessed on an estimate basis and additions are made thereon.- CIT v. Aero Traders Pvt. Ltd.: The Delhi High Court affirmed that estimated profit rates applied on turnover do not amount to concealment or furnishing of inaccurate particulars.Conclusion:In both appeals, the Tribunal concluded that the AO had only estimated the Gross Profit on alleged non-genuine purchases without conclusive proof of concealment or inaccurate particulars. Therefore, the CIT(A)'s decision to delete the penalties under Section 271(1)(c) was upheld. The appeals of the revenue were dismissed, affirming that penalties cannot be levied based on ad hoc estimations of income.Order Pronouncement:The order was pronounced on 22.03.2021, as per Rule 34(4) of ITAT Rules, by placing the pronouncement list on the notice board.