Penalty u/s 271(1)(c) is not applicable in case of estimated income

DCIT, CIRCLE-1 VS.SHYAM KUNDANDAS GYANCHANDANI
ITAT MUMBAI BENCH
DATED: 03/02/2023

HELD THAT

When the addition is on estimated basis, penalty u/s. 271(1)(c) of the Act cannot be levied on such ad hoc estimated income. The disallowance of purchases on ad-hoc basis does not tantamount to furnishing inaccurate particulars of income under the provisions of Section 271(1) (c) of the Act.

BRIEF FACTS

1. The assessee is engaged in the business of reseller in chemicals & fuels.

2. The assessee has filed the return of income for the A.Y. 2009-10 on 30.09.2009 disclosing a total income of Rs. 6,06,148.

3. Subsequently the AO has received the information from Sales Tax Department, that the assessee has obtained bogus purchase bills from M/s. Neptune Corporation aggregating to Rs. 5,44,589.

4. The Assessing Officer (AO) has reason to believe that the income has escaped assessment and issued notice u/s 148 of the Act, in compliance the assessee has filed the revised return of income disclosing total income of Rs. 6,06,148 further the notice u/s 143(2) and 142(1) of the Act are issued.

5. In compliance, the Ld. AR of the assessee appeared from time to time and submitted the information and the case was discussed.

6. Whereas, the AO has issued notice u/s 133(6) of the Act on the party to examine the genuineness of the purchases but there was no response. The assessee has filed detailed letters on 26.03.2015 & 27.03.2015 with the supporting evidences. But the AO was not satisfied with the explanations and the information and finally made an addition of Rs. 5,44,589 and assessed the total income of Rs. 11,50,740 and passed the order u/s 143(3) r.w.s. 147 of the Act dated 30.03.2015.

7. Subsequently, the AO has initiated the penalty proceedings u/s. 271(1)(c) of the Act.

8. In the course of penalty proceedings it was brought to the knowledge of the Assessing officer that the assessee has filed an appeal with the CIT(A) on quantum addition of bogus purchases.

9. Whereas, the CIT(A) has relied on the facts and judicial decisions and restricted the addition to the extent @ 25% of purchases and on further appeal the Honble Tribunal has restricted the addition to the extent of 12.5%.

10. The A.O. has considered these facts and observed that none appeared on behalf of the assessee nor any explanations were filed in respect of penalty notice.

11. The A.O. dealt on the facts and the findings of the scrutiny assessment and levied a penalty of Rs. 21,034 and passed the order u/s. 271(1)(c) of the Act dated 21.03.2018. CIT (appeals) observed that no penalty can be levied on estimated income and directed the A.O. to delete the penalty and allowed the assessee's appeal.

12. Aggrieved by the order of the CIT(A), the revenue has filed an appeal with the Hon'ble Tribunal.

DECISION

ITAT held that when the addition is on estimated basis, penalty u/s. 271(1)(c) of the Act cannot be levied on such ad hoc estimated income. The disallowance of purchases on ad-hoc basis does not tantamount to furnishing inaccurate particulars of income under the provisions of Section 271(1) (c) of the Act. The Assessing officer has not doubted the sales and made disallowance of bogus purchases. Further the assessing officer made an addition based on the information received from Sales tax department Maharashtra since the said information could not conclusively be proved.

Accordingly, ITAT are not inclined to interfere with the order of the Ld. CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue.