TaxTMI 
TaxTMI 
2025 (6) TMI 2171
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..... 21,005/- of the Act, by ignoring the fact that the Maharashtra Sales Tax Department thru DGIT(Investigation Wing), Mumbai has proved beyond doubt that M/s. Prime Star, M/& Mohit Enterprises & M/s. Mayur Exports, all were paper companies, controlled and operated by Mr. Bhavarlal Jain, a hawala trader, who were involved in providing accommodation entries of bogus purchases and the assessee firm has availed accommodation entries of bogus purchases of Rs. 5,06,530/- from three hawala traders and deliberately furnished inaccurate particulars of income for the A.Y. 2007-08?" "2. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the penalty levied of Rs. 21,005/- of the Act, by ignoring the provisions of the Section 2988 of the Act, which is relevant this case which defines that, no return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid ar shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment,....
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....mstances of the case and in law, Ld. CIT(A) has erred in deleting the penalty levied u/s 271(1)(c) of the Act, without appreciating judgment on the decision of Hon'ble Delhi High Court in the case of CIT Vs Atul Kumar Gupta in ITA No. 479/2014, which reinforces the Revenue Authority to impose penalties under section 271(1)(c), in the cases where the assessee fails to provide accurate and satisfactory explanations for discrepancies in their accounts even if the addition is made of estimate basis?" 8. The Tax- Effect involved in the instant case is Rs. 21,005/-, which is below the prescribed limit as per CBDT's Circular F.No.279/Misc.142/2007-ITJ (Pt) amended vide No 09/2024 dated. 17.09.2024. However, the case fall under one of the exceptions laid down in CBDT Circular No. 05/2024 Dated. 15.03.2024, wherein it is stated that in cases involving "organized tax evasion" the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit. 9. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 2. Briefly stated, the facts of the case are that the Assessing Officer, w....
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....e issue of addition on estimate basis the Ld. CIT(A) has deleted the penalty observing as under: "2.3 Penalty cannot be levied where addition is on estimation/adhoc basis: 1.1. 1. The AO vide his assessment order dated 12.3.2015 rejected the book results of the Appellant under section 145(3) and disallowed estimated 25% of the alleged bogus purchases as element of profit embedded in the purchases. This estimation was reduced to 12.32% by the CIT(A) vide his order dated 26.2.2018 on the basis of average of gross profit for 3 preceding and subsequent years. It is submitted that this clearly shows that the addition was purely based on an estimation of profit embedded in the alleged purchase by the AO/CIT(A). 1.1. 1. In the following cases, in the context of alleged bogus purchases, the jurisdictional Tribunal has held that no penalty can be imposed where the addition is made on adhoc/estimated basis- (a) ITO v. Vipul P. Shah, I.T.A. No.4437/Mum/2019 (order dated 9.2.2021): In this recent case, the assessment was reopened on the basis of Information received from the Investigation Wing of the Department in which it was conveyed that....
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.... income. Therefore, we are of the considered view that mere disallowance of purchases on adhoc basis does not tantamount to willful furnishing inaccurate particulars of Income within the meaning of section 271(1)(c) of the Income-tax Act, 1961. Hence, we are of the considered view that the AO was erred in levying penalty u/s 271(1)(c) of the Act. Accordingly we direct the AO to delete penalty levied u/s 271(1)(c) of the Act." In the Appellant's case also, the addition is made on adhoc basis by estimating profit embedded in the alleged bogus purchases. Applying the observations of the jurisdictional Tribunal to the Appellant, it is submitted that penalty on the basis of such estimated addition cannot be upheld. (c) Elcon Pipe and Fittings Pvt. Ltd. v. ITO, ITA No.496/Mum/2018 (order dated 11.2.2019) The assessee was a private limited company, engaged in the business of trading of Pipe material. The AO reopened the assessment on the basis of information received from Sales Tax Department, Government of Maharashtra that the assessee is one of the beneficiaries who has taken accommodation entries from hawala dealers. He disallowed the aggregate purchase o....
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....d concealment of two particulars of income in the assessment order by issuing penalty notice under section 271(1)(c). Thereafter, the assessing officer framed the assessment by levying minimum penalty equal to 100% of the tax sought to be evaded at Rs. 5,53,318. On further appeals, the Tribunal observed as follows: "We have heard the learned D.R. and perused the material on record. We find that in this case the assessment was framed by the assessing officer after making ex-parte addition of Rs. 16,54,146 towards 100% of the bogus purchases which the co-ordinate bench of the Tribunal in quantum proceedings reduced to 12.5% of such purchases. In our opinion, this is a clear cut case where the Income has been estimated by applying a percentage of 12.5% and therefore the penalty under section 271(1)(c) can not be imposed. We are, therefore, setting aside the order of learned Commissioner (Appeals) and direct the assessing officer to delete the penalty." Applying this, it is submitted that the addition in Appellant's case is also on estimation basis and therefore, no penalty can be levied on such addition. (e) ITO v. Bandu Hatwar, ITA No.1567/Mum/2017 (ord....
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.... account in the second round and applied the 8% net profit rate prescribed under Section 44 AD. In the instant case, the turnover is more than 40 lacs, so Section 44AD is not applicable, nonetheless the A.O. has inspired with the provision of Section 44AD and made the addition by estimating the net profit rate @ 8%. Rejection of the books of account allowed the A.O. to make the addition on estimate basis. When the addition is made on estimate basis, no penalty under Section 271 (1)(c) of the Income Tax Act, can be imposed as per the ratio laid down in the case of CIT v. Arjun Prasad Ajit Kumar [I.T. Appeal No. 13 of 1999, dated 3-12008]" (b) CIT v. Arjun Prasad Ajit Kumar, (2008) 214 CTR 355 (All.): The assessee was a country liquor contractor/vendor. In the assessment proceedings, the account books of the assessee were rejected on the ground that the sales alleged by the assessee were not verified. Thereafter, sales were estimated and penalty was imposed under section 271(1)(c). The Tribunal held that even though the assessee's explanation had not been found to be satisfactory, there was nothing on record to show that the explanation offered by the assessee l....
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....an be levied. (d) Farrukhabad Investment (India) Ltd vs. DCIT, I.T.A No. 141/Agra/2009 (order dated 11.9.2018)(TM) In this case, the AO disallowed the entire interest expense of Rs. 1.18 crores. The CIT(A) restricted it to 10% on estimate basis which was confirmed by the Tribunal. The AO levied penalty on the disallowance. CIT(A) confirmed it. On appeal, the Third Member observed as follows: "It is a trite law that no penalty can be imposed u/s 271(1)(c) of the Act on an estimated income/additions... What follows from the above discussion is that where income is estimated or disallowance of expenses is made on estimate basis, there can be no penalty. The raison d'etre for non-imposition of penalty in both the situations is that there is lack of precision as to concealment of income or furnishing of inaccurate particulars of income. It is only an estimation shorn of any certainty or accuracy." Applying the ratio to the facts of the Appellant, it is submitted that the penalty which is based on an estimated disallowance is liable to be deleted. 1. Anil Abhubhai Odedara v. ITO [2021] 183 ITD 313 (Rajkot) 2. ACIT v. Shiv....
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....produced as under: "6. In this case as is evident from the observation of the para 5.1 of the Ld. AO's order, the addition was made on estimation of total turnover after rejecting the books of accounts. Notice u/s. 133(6) were also issued to the various purchase parties and all the notice were returned by the postal authority and the assessee has not produced the party to confirm the same. These observation of the lower authorities shows that it is not established by the revenue that the assessee had concealed the particulars of income or has submitted inaccurate particulars of income so as to attract Section 271(1)(c) of the Act. Admittedly, the addition has been made on estimate basis, therefore, the ratio of judgment of the Karnataka High Court referred (supra) and various pronouncements of the judicial ITAT covers the facts of the present case of the addition was made on the estimate basis and for the aforesaid discussion, the penalty is m rightly deleted by the Ld. CIT(A). We find no illegality in the order of the Ld. Cr accordingly confirmed." 5. Thus Tribunal in the case of ITO v. Sunil Bhagwandas Vorani (HUF) [2024] 169 taxmann.com 23 (Mumbai-Trib.), held th....