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2024 (10) TMI 1656 - AT - Income TaxPenalty u/s 271(1)(c) - Estimation of income - bogus purchases - addition was made on the basis of the estimated addition @5% on the alleged bogus purchases - HELD THAT - Admittedly AO made an addition on estimated basis. It has been decided in a number of judgments that when income of assessee was determined on estimation basis then no penalty u/s 271(1)(c) could be imposed for concealment and furnishing inaccurate particulars. The quantification of the addition is admittedly only an estimate. It is settled principle of law that penalty is not attracted on estimated additions. In that view of the matter we find no justification imposing penalty for concealment of income or furnishing of inaccurate particulars of income by the assessee. We respectfully relied on the order of Fancy Diamonds India Pvt Ltd 2023 (6) TMI 1370 - ITAT MUMBAI We set aside the impugned appeal order and direct to delete the penalty levied u/s 271(1)(c) - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
- Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 is leviable where additions to income are made on an estimated basis? - Whether the assessee is liable to pay penalty for concealment of income or furnishing inaccurate particulars when the additions are based on estimated bogus purchases? - Whether the orders of the lower authorities imposing penalty under section 271(1)(c) are sustainable in the facts and circumstances of the cases for Assessment Years 2011-12 and 2012-13? 2. ISSUE-WISE DETAILED ANALYSIS Issue: Levy of penalty under section 271(1)(c) on additions made on estimated basis Relevant legal framework and precedents: Section 271(1)(c) of the Income-tax Act empowers the Assessing Officer to impose penalty for concealment of income or furnishing inaccurate particulars of income. However, the levy of penalty requires a definite finding of concealment or furnishing of inaccurate particulars beyond mere estimation. Several High Courts and coordinate benches of the Tribunal have held that penalty under section 271(1)(c) is not leviable where additions are made purely on an estimated basis without concrete evidence of concealment. The judgment of the Rajasthan High Court in CIT vs. Krishi Tire Retreading and Rubber Industries (360 ITR 580), Punjab & Haryana High Court in CIT vs. Sangrur Vanaspati Mills Ltd. (303 ITR 53), and Gujarat High Court in CIT vs. Subhash Trading Co. Ltd. (221 ITR 110) have consistently ruled that estimated additions do not attract penalty under section 271(1)(c). Court's interpretation and reasoning: The Tribunal examined the facts that the additions were made on estimated percentages of bogus purchases (5% for A.Y. 2011-12 and 8% for A.Y. 2012-13). The penalty was levied on the tax sought to be evaded based on these estimated additions. The Tribunal relied on a recent coordinate bench decision in Fancy Diamonds India Pvt Ltd vs. DCIT (ITA Nos 961 to 963/Mum/2023), where it was held that penalty is not sustainable on estimated additions as there is no definite finding of concealment or furnishing of inaccurate particulars. Key evidence and findings: The Assessing Officer made additions by estimating profit margins on alleged bogus purchases without establishing any concrete evidence of concealment. The assessee had withdrawn appeals before the CIT(A), and the penalty was imposed subsequently on the estimated additions. The Tribunal noted that the penalty was based solely on these estimates. Application of law to facts: Applying the established legal principles, the Tribunal found that since the additions were purely on an estimated basis, the imposition of penalty under section 271(1)(c) was not justified. The absence of any concrete proof of concealment or furnishing inaccurate particulars meant that the penalty could not be sustained. Treatment of competing arguments: The Departmental Representative supported the penalty orders relying on the assessments and CIT(A) orders. However, the Tribunal distinguished the present case on the ground that the addition was estimated and referred to binding precedents disallowing penalty on estimated additions. The Tribunal gave greater weight to the principle that penalty requires definite concealment, which was lacking here. Conclusions: The Tribunal concluded that penalty under section 271(1)(c) cannot be levied on additions made on estimated basis, and hence the penalty orders for both Assessment Years 2011-12 and 2012-13 were liable to be quashed. 3. SIGNIFICANT HOLDINGS "It is an accepted legal position that penalty under section 271(1)(c) of the Act levied on additions made merely on estimations is unsustainable." "When the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty u/s. 271(1)(c) of the Act is not leviable." "Since the facts of the issue under consideration are identical with the facts of the appeal pertaining to Assessment Year 2013-14 decided by the coordinate bench, following the said decision, we hold that the penalty levied under Section 271(1)(c) of the Act is liable to be cancelled in the instant cases since the additions have been made on estimated basis." Core principles established:
Final determinations:
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