2025 (2) TMI 975 - AT - Income Tax

ITAT deletes penalties under sections 271(1)(c) and 271AAB on estimate-based additions for bogus purchases

ITAT Mumbai deleted penalties u/s. 271(1)(c) and 271AAB imposed on assessee for alleged bogus purchases and labour payments. The AO made additions under ... Penalty u/s. 271(1)(c) and u/s. 271AAB of the Act - order u/s 143(3) r.w.s. 153C passed making addition on account of cash expenses on account of bogus purchases expenditure u/s. 69C and bogus labour payment u/s. 69C - HELD THAT:- Irresponsible noting by ld. Assessing Officer despite having findings of the Coordinate Bench on the quantum additions on record, reflects absence of fundamental understanding of judicial discipline, while taking up penalty proceedings. The table produced in impugned penalty order, for all the additions made by the ld. AO have been either reduced to a lower percentage from the percentage at which the addition was made or have been deleted in toto. As in the case of addition for cash expenses on account of “site expenses”, AO made the addition by applying 50% of the expenses which was reduced by CIT(A) to 35% and was subsequently reduced to 20% by the Coordinate Bench. Similar is the case for other expenses and payments for which additions have been made. Even the first appellate authority, despite taking record of partial relief to the assessee in terms of the findings as stated above has observed that there appears to be a malafide intention of the assessee and “mens rea” is present in the case. He concluded to uphold the penalty so imposed on account of furnishing inaccurate particulars of income by the assessee. As noted both by AO and CIT(A), tabulated above that additions sustained are purely on estimate basis. The issue before us is no longer res integra and it is a settled law that in the said factual position, penalty is not imposable on additions sustained on estimate basis. It is an accepted fact that whenever an addition is made on the basis of estimate, penalty u/s. 271(1)(c) is not leviable. There is no scope to levy penalty under the said section. Accordingly, in the given set of facts, the penalty levied u/s. 271(1)(c) is deleted. Penalty as imposed u/s. 271AAB also deleted as same observations above - Appeal decided in favour of assessee. The issues presented and considered in the judgment are as follows:1. Whether penalties imposed under sections 271(1)(c) and 271AAB of the Income-tax Act are justified for inaccurate particulars of income.2. Whether additions made on an estimate basis are subject to penalty under section 271(1)(c) of the Act.The detailed analysis of the issues is as follows:Issue 1:Relevant legal framework and precedents:- The penalties were imposed under sections 271(1)(c) and 271AAB of the Income-tax Act.- The Coordinate Bench of ITAT had granted partial relief to the assessee in the quantum proceedings.Court's interpretation and reasoning:- The Tribunal considered the common issue of penalty levied on matters previously decided by the Coordinate Bench.- The Tribunal noted that the penalties were imposed for furnishing inaccurate particulars of income.- The Tribunal criticized the Assessing Officer for disregarding the findings of the Coordinate Bench and for lacking judicial discipline in imposing penalties.Key evidence and findings:- The additions made by the Assessing Officer were reduced by the CIT(A) and further by the Coordinate Bench.- The Tribunal observed that the sustained additions were based on estimates.Application of law to facts:- The Tribunal held that penalties are not imposable on additions sustained on an estimate basis.- It emphasized that penalties under section 271(1)(c) are not leviable when additions are made on an estimate basis.Treatment of competing arguments:- The Assessing Officer and the CIT(A) argued for upholding the penalties due to alleged malafide intention and presence of 'mens rea.'- The assessee argued that penalties should not be imposed on estimate-based additions.Conclusions:- The Tribunal allowed the appeal of the assessee, deleting the penalties imposed under sections 271(1)(c) and 271AAB for inaccurate particulars of income.- The Tribunal held that penalties are not justified for additions made on an estimate basis.Significant holdings:- The Tribunal established the principle that penalties are not imposable on additions sustained on an estimate basis.- Final determinations on each issue were in favor of the assessee, leading to the deletion of the penalties imposed.In conclusion, the Tribunal's judgment focused on the inappropriateness of imposing penalties for estimate-based additions and highlighted the importance of judicial discipline in penalty proceedings. The Tribunal's decision to delete the penalties was based on the legal principle that penalties under the Income-tax Act should not be levied on additions made on an estimate basis.