Validity of Penalty under section 271(1)(c) towards addition of bogus purchases

Short Overview : Where assessment was framed by AO after making ex-parte addition towards 100% of the bogus purchases which the co-ordinate bench of Tribunal in quantum proceedings reduced to 12.5% of such purchases, therefore, the penalty under section 271(1)(c) could not be imposed.

AO made addition on account of bogus purchases. The penalty proceedings were also initiated for concealment of two particulars of income in the assessment order by issuing penalty notice under section 271(1)(c) which was not replied by assessee. CIT(A) affirmed the order of AO. Co-ordinate bench of Tribunal allowed the appeal of assessee in quantum by directing AO to apply a profit rate of 12.5% on the said bogus purchases.

it is held that Assessment was framed by AO after making ex-parte addition towards 100% of the bogus purchases which the co-ordinate bench of Tribunal in quantum proceedings reduced to 12.5% of such purchases. This a clear case where the income was estimated by applying a percentage of 12.5% and therefore, the penalty under section 271(1)(c) could not be imposed.

Decision: In assessee’s favour.

Relied: UOI v. Dharamendra Textile Processors (2008) 166 taxman.com 65 (SC) : 2007 TaxPub(DT) 1387 (SC), CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) : 1973 TaxPub(DT) 0421 (SC).

IN THE ITAT, MUMBAI BENCH

SANDEEP GOSAIN, J.M. & RAJESH KUMAR, A.M.

Mohammed Sharif v. ITO

ITA No. 2408/M/2018

20 May, 2019

Assessee by: None

Revenue by: Jothilakshmi Nayak, D.R.

Rajesh Kumar, A.M.

The present appeal has been preferred by the assessee against the order dated 19-2-2018 of the Commissioner (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

2. The only issue raised by the assessee in the grounds of appeal is against the confirmation of penalty of Rs. 5,53,318 by learned Commissioner (Appeals) as levied by the assessing officer under section 271(1)(c) of the Act.

3. The facts in brief are that the assessment was framed under section 143(3) read with section 147 vide order dated 24-3-2015 assessing the income at Rs. 20,45,180 as against the return of income of Rs. 3,91,034 by adding Rs. 16,54,146 on account of bogus purchases. The penalty proceedings were also initiated for furnishing of inaccurate particulars of income and concealment of two particulars of income in the assessment order by issuing penalty notice under section 271(1)(c) dated 26-8-2015 which was not replied by the assessee. Thereafter, the assessing officer framed the assessment by levying minimum penalty equal to 100% of the tax sought to be evaded at Rs. 5,53,318 by relying on the decision of Apex Court in the case of Union of India v. Dharmendra Textile Processors Ltd. (2008) 166 taxman.com 65 (SC) : 2007 TaxPub(DT) 1387 (SC) and also the decision of Apex Court in the case of Vegetable Products Ltd. (1973) 88 ITR 192 (SC) : 1973 TaxPub(DT) 0421 (SC) vide order dated 28-9-2015 passed under section 271(1)(c) of the Act.

4. In the appellate proceedings, the learned Commissioner (Appeals) also affirmed the order of assessing officer by holding that the assessing officer has rightly imposed penalty for furnishing of inaccurate particulars of income and thus justified the imposition of penalty.

5. The learned A.R. submitted before us that the co-ordinate bench of the Tribunal in ITA No. 2409/M/2018 assessment year 2009-10 vide order dated 19-12-2018 partly allowed the appeal of the assessee in quantum by directing the assessing officer to apply a profit rate of 12.5% on the said bogus purchases and thus the learned A.R. submitted that it is a case of estimation of income on which the penalty is not imposable. This is a clear cut case of difference of opinion as the assessing officer added 100% of the amount whereas the coordinate bench of the Tribunal has sustained the addition to the tune of 12.5% and therefore penalty in such a scenario can not be imposed as has been decided by the co-ordinate benches of the Tribunal in a number of cases .The learned AR therefore prayed before the bench to set aside the order of Commissioner (Appeals) and direct the assessing officer to delete the penalty.

6. The learned D.R., on the other hand, strongly relied on the order of authorities below.

7. We have heard the learned D.R. and perused the material on record. We find that in this case the assessment was framed by the assessing officer after making ex parte addition of Rs. 16,54,146 towards 100% of the bogus purchases which the co-ordinate bench of the Tribunal in quantum proceedings reduced to 12.5% of such purchases. In our opinion, this is a clear cut case where the income has been estimated by applying a percentage of 12.5% and therefore the penalty under section 271(1)(c) can not be imposed. We are, therefore, setting aside the order of learned Commissioner (Appeals) and direct the assessing officer to delete the penalty.

8. In the result, the appeal of the assessee is allowed.