Levy of penalty u/s 271(1)(c) of the Income Tax Act

This case involves an appeal against a penalty levied under Section 271(1)(c) of the Income Tax Act. The Assessing Officer had disallowed purchases based on estimated profit, which was later confirmed by the CIT(A). However, the Tribunal found that when income is sustained on an estimated basis, the penalty under Section 271(1)(c) is not sustainable. Consequently, the Tribunal set aside the penalty order.

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH “E” MUMBAI
BEFORE SHRI SHAMIM YAHYA ACCOUNTANTMEMBER AND
SHRI PAVAN KUMAR GADALE JUDICIAL MEMBER
ITA No. 7746/MUM/2019
Assessment Year: 2007-08

M/s Sunmoon Enterprises,
FC-8160A, FC-8161, FC-8162, Bharat
Diamond Bourse, Bandra Kurla
Complex, Bandra East,
Mumbai-400051.

PAN No. AACFS 2954 D

Appellant
Vs.
Assistant Commissioner of
Income Tax-19(3),
Matru Mandir Bldg.
Mumbai-400007.

Respondent

Assessee by : Mr. Ketan Vajani, AR
Revenue by : Mr. Vijay Kumar Menon, DR
Date of Hearing : 15/07/2021
Date of pronouncement : 26/07/2021
ORDER

The assessee has filed an appeal against the order of Commissioner of Income Tax (Appeals)-3 passed u/s 271(1)(c) and 250 of the Income Tax Act, 1961.

2. The brief facts of the case are that, the assessee is a partnership firm and is engaged in the business of trading of diamonds. The assessee has filed the return of income for the assessment year 2007-08 on 15.11.2007with the total income of Rs.28,82,303/-. The return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act were issued and accepted the return of income and the A.O. has passed the order u/s 143(3) of the Act dated 15.11.2007. Subsequently, the DGIT(Inv) Mumbai in respect of search and survey conducted in the case of Bhanwarlal Jain & Ors. Mumbai found that the assessee had transactions with the related group concerns. Therefore, the Assessing Officer has reason to believe that the income has been escaped as the assessee has ventured into obtaining accommodation entries in respect of purchases as per the data of DGIT (Inv) from Little Diam of Rs.96,06,064/-. The Assessing Officer has issued notice u/s 148 of the Act. The assessee was provided the reasons recorded and the assessee has filed objections. Whereas, the assessing Officer required assessee to prove the genuineness of purchases transactions and issued the notice u/s 142(1) of the Ac and the assessee has submitted the details. The Assessing Officer was not satisfied with the details and the information of transactions. Therefore, the Assessing Officer has estimated income @ 8% of the non-genuine purchases which worked to Rs.7,68,485/- and added to the total income and passed the order u/s 143(3) r.w.s. 147 dated 28.09.2015.

3. Aggrieved by the penalty order, the assessee has filed an appeal before the Ld. CIT(A). Whereas, the Ld. CIT(A) has confirmed the action of the Assessing Officer in levying the penalty and dismissed the assessee’s appeal. Aggrieved by the order the CIT(A), the assessee has filed an appeal before the Honble Tribunal.

4. We have heard the rival submissions and perused the materials on record. The sole crux of the disputed issued is in respect of levy of penalty u/s 271(1)(c) of the Act by based on the assessment order passed u/s 143(3) r.w.s. 147 of the Act. We find that Assessing Officer has made disallowance of bogus purchases by estimation of gross profit @ 8% and has accepted sales in the books of account. We rely on the ratio of decision of Hon’ble Jurisdictional High Court in the case of CIT v. Nikunj Eximp (216 Taxman.com 171) and Honble Tribunal. We are of the opinion that when the income/ profit element is sustained on estimated basis,the penalty levied u/s 271(1)(c) f the Act is not sustainable. Accordingly, we set aside the order of CIT(A) and direct the Assessing Officer to delete the penalty and allow the grounds of appeal of the assessee.

5. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open Court on 26/07/2021.

Please find attached the enclosed file for the full judgement