The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it, while deleting penalty based on estimated addition, held that entire bogus purchases cannot be disallowed when sales are not disputed.
The aforesaid observation was made by the Mumbai ITAT, when an appeal was preferred before it by the assesee, as directed against the two different orders of the Commissioner of Income-tax (Appeal), Thane [CIT(A)], dated 26/10/2016 and the order of the National Faceless Appeal Centre (NFAC), Delhi, dated 21/09/2021, for the assessment years 2011-12 and 2010-11, respectively.
The solitary ground of the assessee’s appeal being one pertaining to the confirmation of penalty under section 271(1)(c), for furnishing of inaccurate particulars of income, the fact in brief were that initially the appeal of the assessee was filed against the confirmation of penalty levied under section 271(1)(c) of the Income Tax Act, which was dismissed by the ITAT, H Bench, Mumbai in ITAs No.1908 & 1907/Mum/2021 in an exparte order wherein the assessee had not made compliance.
Subsequently, the assessee filed miscellaneous application vide M.A.Nos.201/Mum/2022 & 202/Mum/2022 stating that no compliance could be made on the date of hearing of the case because of the expiry of one of the close relatives of the assessee, and thereafter, the miscellaneous application of the assessee was allowed vide order dated 27/12/2022 recalling the order under rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963.
It so happened that during the course of the assessment proceedings, the Assessing Officer disallowed 100% of the purchases made through three parties on the basis of the information received from the sales-tax department that those three parties were engaged in providing bills without supplying any good. However, the CIT(A) estimated the quantum addition to the extent of 12.5% of purchases, subsequent to which the Assessing Officer levied a penalty of Rs.8,13,793/- under section 271(1)(c) of the Income Tax Act, for furnishing inaccurate particulars of income.
Aggrieved by the same, the assessee filed an appeal before the CIT(A) against the aforesaid levy of penalty. However, the CIT(A) having dismissed the appeal the appeals of the assessee, the assessee was left with the only option to prefer the instant appeals before the Mumbai ITAT.
Hearing the opposing contentions of both the sides as was submitted before it, by Shri N.A. Kulkarni, the AR of the assessee on the assessee’s behalf, and by Shri Abhishek Kumar, the Sr AR, on the Department’s behalf, as well as by perusing the materials available on record, the ITAT Panel consisting of Amit Shukla, the Judicial Member and Amarjit Singh, the Accountant Member, observed:
“Heard both the sides and perused the materials on record. It is undisputed fact that impugned penalty was levied only on estimated addition. The Assessing Officer had made addition of entire bogus purchases, however, did not doubt the sales made against such purchases. We observe that the Tribunals in various decisions have held that where sales are not disputed, entire alleged bogus purchases cannot be disallowed and only the gross profit on the alleged purchases to be disallowed.”
“ After taking into consideration the various decisions of the Tribunal that no penalty under section 271(1)(c) is leviable on estimated additions and also after taking into consideration the decision of Hon’ble Rajasthan High Court in the case of CIT vs Krishi Tyre Retreading & Rubber Industries 360 ITR 580; the decision of Hon’ble Punjab & Haryana High Court in the case of CIT vs Sangrur Vanaspati Mills Ltd 303 ITR 53 (P&H); and the decision of Hon’ble Gujarat High Court in the case of CIT vs Subhash Trading Co Ltd 221 ITR 110 (Guj), we direct the Assessing Officer to delete the impugned penalty levied on estimated addition.”, the Mumbai ITAT thus held, thereby allowing both the appeals of the assessee .
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