2025 (8) TMI 877 - AT - Income Tax

Penalty under Section 271(1)(c) deleted as estimated GP rate reduced from 12.5% to 2% in purchase-sales case

The ITAT Mumbai held that since the AO did not dispute the purchases from declared sources and the sales and quantity records were consistent, the ... Levy of penalty u/s 271(1)(c) - estimated GP rate of alleged bogus purchases - HELD THAT:- Nowhere the ld. AO had disputed the fact that these purchases were made from the sources declared in the books of accounts and corresponding sales and quantity tally has not been disturbed. The addition was made by applying the GP rate by the ld. AO which has been substantively reduced by the Tribunal, i.e., from 12.5% to 2%. In such a case on estimation of GP on adhoc basis, no penalty can be levied u/s. 271(1)(c), accordingly, the penalty confirmed by the ld. CIT(A) is deleted. Appeal of the assessee is allowed. The appellate tribunal allowed the assessee's appeal against the penalty imposed under section 271(1)(c) for the assessment year 2007-08. The penalty of Rs. 4,25,000 was levied on an addition of Rs. 13,75,308 made by estimating the gross profit (GP) rate at 12.5% on alleged bogus purchases. However, the quantum proceedings reduced the GP rate to 2%, significantly lowering the addition to Rs. 2,20,000. The tribunal noted that the assessing officer did not dispute the genuineness of purchases or corresponding sales and quantities; the addition was purely an estimation based on GP rate. Since the GP rate was applied on an adhoc basis and later substantially reduced, the tribunal held that 'no penalty can be levied u/s. 271(1)(c)' on such estimation. Consequently, the penalty confirmed by the CIT(A) was deleted. The decision underscores that penalty under section 271(1)(c) cannot be sustained when additions arise from estimation without any finding of concealment or misreporting by the assessee.