2025 (7) TMI 312 - AT - Income Tax

Penalty u/s. 271(1)(c) on estimated addition - concreate evidence of concealment found or not? - estimation of income on Bogus purchases - CIT(A) reduced the percentage of addition to 12.5% - HELD THAT - We find that in CIT v/s Krishi Tyre Retreading and Rubber Industries 2014 (2) TMI 21 - RAJASTHAN HIGH COURT held that where an addition is made purely on an estimate basis no penalty under section 271(1)(c) of the Act is leviable. Similar view has been expressed in CIT v/s Sangrur Vanaspati Mills Ltd. 2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT wherein held that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment penalty under section 271(1)(c) of the Act is not leviable. Thus justification of imposition of penalty where the addition is made on the basis of an estimate is no longer res integra. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether penalty under section 271(1)(c) of the Income Tax Act, 1961 ("the Act") can be levied on the basis of an addition made purely on an estimated basis without concrete evidence of concealment of income or furnishing inaccurate particulars of income.

- Whether the levy of penalty is justified where the addition to income is based on presumed bogus purchases, which are not substantiated by direct evidence but estimated by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Legitimacy of penalty under section 271(1)(c) of the Act on estimated additions without concrete evidence of concealment.

Relevant legal framework and precedents:

Section 271(1)(c) of the Act empowers the tax authorities to impose penalty for concealment of income or furnishing inaccurate particulars of income. The imposition of penalty requires that there be either concealment or furnishing of inaccurate particulars, supported by evidence.

Judicial precedents relevant to this issue include:

• Hon'ble Rajasthan High Court in CIT v. Krishi Tyre Retreading and Rubber Industries ([2014] 360 ITR 580 (Raj.)) held that penalty under section 271(1)(c) cannot be levied where additions are made purely on estimate basis without concrete evidence of concealment.
• Hon'ble Punjab & Haryana High Court in CIT v. Sangrur Vanaspati Mills Ltd. ([2008] 303 ITR 53 (P&H)) ruled that when additions are based on estimates and not on concrete evidence of concealment, penalty under section 271(1)(c) is not leviable.
• Hon'ble Gujarat High Court in CIT v. Subhash Trading Co. Ltd. ([1996] 221 ITR 110 (Guj.)) took a similar view, emphasizing that penalty cannot be imposed solely on estimated additions.

Court's interpretation and reasoning:

The Tribunal carefully examined the facts that the AO made additions to the income of the assessee based on information from DGIT (Investigation) about purchases from parties providing accommodation entries without actual business. The AO estimated 25% of the alleged bogus purchases as non-genuine and added that amount to income. The CIT(A) reduced the addition to 12.5% of the bogus purchases.

However, the Tribunal noted that these additions were made purely on an estimated basis without direct or concrete evidence of concealment or fraud by the assessee. The parties from whom purchases were allegedly made could not be served notices, and the assessee failed to furnish addresses or produce them, but no direct evidence of concealment was established.

Relying on the aforementioned High Court precedents, the Tribunal held that penalty under section 271(1)(c) cannot be sustained when additions are made on estimate basis alone.

Key evidence and findings:

• The assessee's return declared income of INR 5,54,960.
• Information from DGIT (Investigation) indicated purchases of INR 89,41,332 from parties providing accommodation entries.
• AO initiated reassessment under section 147 and issued notices under section 133(6) to these parties, which were returned unserved.
• The assessee failed to produce these parties or provide addresses.
• AO treated 25% of such purchases as bogus and made addition of INR 22,25,333; CIT(A) reduced this to 12.5%.
• Penalty of INR 1,48,627 was levied under section 271(1)(c) by AO and upheld by CIT(A).

Application of law to facts:

The Tribunal applied the legal principle that penalty under section 271(1)(c) requires proof of concealment or furnishing inaccurate particulars. Since the additions were based on estimates without concrete evidence of concealment, the penalty was not justified.

Treatment of competing arguments:

The Revenue argued that the purchases were bogus and non-genuine, justifying penalty. The assessee contended that penalty cannot be levied on estimated additions without concrete evidence of concealment.

The Tribunal found the assessee's argument persuasive, given the absence of direct evidence and reliance solely on estimation, and followed binding High Court precedents supporting this view.

Conclusions:

The Tribunal concluded that the penalty under section 271(1)(c) cannot be levied merely on the basis of estimated additions without concrete evidence of concealment or furnishing inaccurate particulars of income.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"We find that the Hon'ble Rajasthan High Court in CIT v/s Krishi Tyre Retreading and Rubber Industries... held that where an addition is made purely on an estimate basis, no penalty under section 271(1)(c) of the Act is leviable. Similar view has been expressed by the Hon'ble Punjab & Haryana High Court... Further, the Hon'ble Gujarat High Court... has taken a similar view in respect of levy of penalty under section 271(1)(c) of the Act on estimated additions. Therefore, it is evident that the issue about, justification of imposition of penalty, where the addition is made on the basis of an estimate, is no longer res integra."

"Thus, respectfully following the aforesaid decisions, we are of the considered view that the penalty under section 271(1)(c) of the Act cannot be levied merely on the basis of an estimated addition."

Core principles established include:

• Penalty under section 271(1)(c) requires concrete evidence of concealment or furnishing inaccurate particulars, not mere estimation.
• Additions made on the basis of estimation alone do not justify penalty imposition.
• The burden on the Revenue to prove concealment is not discharged by reliance solely on estimated figures.

Final determination was to delete the penalty imposed under section 271(1)(c) of the Act and allow the appeal filed by the assessee.