INCOME TAX ACT, 1961

Section 271(1)(c) Section 69

Penalty under section 271(1)(c) - Leviability - Gross profit estimated on alleged bogus purchases -

While completing the assessment on the basis of the information received from Sales Tax Department, Mumbai the AO noticed that the assessee had obtained accommodation entries from various parties without making any purchases from them but made purchases only in gray market. The AO treated such purchases from various parties as non-genuine as the assessee could not produce the parties and also could not establish the movement of goods. AO estimated the profit element in such non-genuine purchases at 20.71% being the gross profit. Assessment was accepted and no further appeal had been preferred by the assessee accepting estimation of profit element from non-genuine purchases made by the AO. Subsequently, AO initiated the penalty proceedings and levied penalty under section 271(1)(c) stating that the assessee had deliberately furnished inaccurate particulars of its income and concealed its income within the meaning of section 271(1)(c) read with Explanation 1. CIT(A) deleted the penalty.Held: It is a settled position of law that penalty cannot be levied when an ad hoc estimation is made. On a perusal of the record, in this case an estimation of Gross Profit was made by the AO restricting the profit element in the alleged bogus purchases at 20.71% for the year under consideration. Estimated rate of profit applied on the turnover of the assessee does not amount to concealment or furnishing inaccurate particulars. AO had only estimated the Gross Profit on the alleged non-genuine purchases without there being any conclusive proof of concealment of income or furnishing inaccurate particulars of such income. Thus, there was, therefore, no infirmity in the order passed by the CIT(A) in deleting the penalty under section 271(1)(c) levied by the AO.

Followed:Deepak Gogri v. ITO ITA No. 1396/MUM/2017, dated 23-11-2017, Dy. CIT v. Manohar Manak, Alloys Pvt. Ltd. ITA No. 5586/MUM/2015, dated 16-1-2017, Harigopal Singh v. CIT (2002) 258 ITR 85 (P&H-HC) : 2002 TaxPub(DT) 1625 (P&H-HC) and CIT v. Aero Traders Pvt. Ltd. (2010) 322 ITR 316 (Del-HC) : 2010 TaxPub(DT) 1381 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

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