Penalty u/s 271(1)(c) quashed where bogus purchases addition based only on estimated gross profit rate ad hoc (1)(c)

ITAT Mumbai deleted the penalty imposed u/s 271(1)(c) on alleged bogus purchases where addition was made by applying an estimated gross profit rate. The assessee had recorded all purchases in the books, made payments through account payee cheques, and furnished quantitative details, stock register entries and corresponding export sales, which were verified. The addition was purely on an ad hoc GP estimation. ITAT held that such estimated additions cannot sustain penalty for concealment or furnishing inaccurate particulars, particularly where the AO's satisfaction was vague and invoked both limbs. The assessee's appeal was allowed.

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Issues Involved:
The judgment involves penalty proceedings under section 271(1)(c) for the Assessment Year 2007-08, specifically concerning the addition made by applying GP rate on alleged bogus purchases and the lack of specification of the charge under which limb penalty is to be levied.

Details of the Judgment:

Issue 1: Addition made on alleged bogus purchases
The assessee was found taking accommodation entry of bogus purchases from four parties based on information from Investigation. The case was reopened under section 147, and the assessee submitted details of purchases, stock register entry, and cheque payments. The Assessing Officer treated the entire purchases as unexplained, but in the first appeal, the addition was reduced by restricting it to 3% of the GP rate. The penalty was levied on the final addition sustained, but the Tribunal found that the purchases were from books, payments were made through account payee cheques, and there were corresponding sales. The Tribunal concluded that penalty cannot be levied for furnishing inaccurate particulars of income or concealing income based on an adhoc estimate of GP rate. The penalty was deleted as the satisfaction of the Assessing Officer was deemed vague.

Issue 2: Lack of specification of penalty charge
The additional ground raised by the assessee regarding the lack of specification of the charge under which limb penalty is to be levied was deemed academic after the penalty was deleted. The Tribunal found that since the penalty was deleted, the legal issue raised in the additional ground became irrelevant.

In conclusion, the appeal of the assessee was allowed, and the penalty levied under section 271(1)(c) was deleted. The judgment was pronounced on 31st July 2023.

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