Income Tax Appellate Tribunal

Jatin Enterprises, Mumbai vs. ACIT

MANU/IU/0173/2024

21.03.2024

Direct Taxation

Where addition is made purely on estimate basis, no penalty is leviable

Present appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi ['the CIT(A)'], for the Assessment Year 2009-10, confirming levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961[IT Act].

It is an undisputed fact that, the Assessing Officer has made addition in the case of assessee on account of alleged bogus purchases. The Assessing Officer made addition of 100% of unproved purchases, the CIT(A) restricted the addition to 12.5% of such purchases. The addition made by the Assessing Officer and subsequently restricted by the CIT(A) to 12.5% is merely on estimations.

The Hon'ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries has held that, where addition is made purely on estimate basis, no penalty under Section 271(l)(c) of the Act is leviable. Similar view has been expressed by the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. The Hon'ble High Court approving the order of Tribunal 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(l)(c) of the Act is not leviable. The High Court in the case of CIT vs. Subhash Trading Co. Ltd. has taken a similar view in respect of penalty levied under Section 271(l){c) of the Act on estimated additions. There are catena of decisions by different High Courts and various Benches of the Tribunal wherein penalty levied under Section 271(l)(c) of the Act on estimated additions has been held to be unsustainable.

Thus, in the facts of the instant case, penalty levied under Section 271(1)(c) of the Act unsustainable. The Assessing Officer is directed to delete the penalty.

In assessment order, the Assessing Officer had initiated penalty proceedings for furnishing inaccurate particulars of income only. Since, both limbs i.e. "concealed particulars of income and furnished inaccurate particulars of income" are recorded in the notice, the notice is defective. The penalty levied under Section 271(1)(c) is liable to be deleted on the ground of defective notice as well. Impugned order is set aside. Appeal of assessee is allowed.

Tags : Assessment Penalty Levy

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