Addition Made Purely on Estimation Basis , No Penalty shall be Leviable u/s 271(1)(c) of Income Tax Act : ITAT Deletes Penalty [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that the penalty levied under Section 271(1)(c) of the Income Tax Act,1961 is liable to be cancelled in the instant cases since the additions have been made on estimated basis.

The assessee Fancy Diamonds India Pvt. Ltd. is engaged in the business of manufacturing and trading of diamonds.

The Assessing Officer (AO) reopened assessment for all the years under consideration by issuing notices under Section 148 of the Income Tax Act on the basis of information that the assessee made bogus purchases by availing accommodation entries from Bhanwarlal Jain group. Hence, concluded the assessments by estimating profit from alleged bogus purchases at 12.5%.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT (A)]. The first appeallate tribunal reduced the rate of profit to 6% and allowed the AO the levy penalty of Rs.1,74,158/-, Rs.6,40,981/- and Rs.21,93,310/- respectively in Assessment Years 2010-11, 2011-12 and 2012-13 under Section 271(1)(c) of the Income Tax Act.

The assessee filed an appeal before the ITAT. The Authorised Representative of the assessee Himanshu Gandhi, submitted that the addition has been made by the AO in all the three years on estimated basis and hence penalty is not leviable on the estimated addition.

The Departmental Representative Vranda U. Matkari, on the contrary, supported the orders passed by the CIT(A).

The ITAT Bench comprising of B.R. Baskaran, Accountant Member and Rahul Chaudhary, Judicial Member observed that during assessment proceedings, the addition was made on estimation at 12.5%. In first appeal, the addition was restricted to 3% and on further appeal to the Tribunal by the Revenue, the addition was enhanced to 6%. The entire addition right from assessment stage to the Tribunal was merely on estimations.

Thus, the Bench held that the penalty levied under Section 271(1)(c) of the Income Tax Act is liable to be cancelled in the instant cases since the additions have been made on estimated basis.

Hence, set-aside the orders passed by the CIT(A) in all the three years under the consideration and directed the Assessing Officer to delete the penalty levied under Section 271(1)(c) of the Income Tax Act in all the three years under consideration.

To Read the full text of the Order CLICK HERE

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