The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) deleted the penalty under Section 271(1)(c) of the Income Tax Act, 1961 on Estimated GP Addition for Alleged Bogus Purchases
In this case, the assessee, Om Sai Traders, was penalised with Rs. 2,89,272 for the assessment year 2010-11 and Rs. 2,07,177 for the assessment year 2011-12. These penalties were imposed based on the estimated gross profit (GP) rate applied to the alleged bogus purchases. The Assessing Officer (AO) had treated the entire purchases of Rs. 74,89,235 for 2010-11 and Rs. 64,93,318 for 2011-12 as bogus and added these amounts to the assessee’s income.
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During the quantum proceedings, the Tribunal had restricted the addition by applying a GP rate of 12.5% on the alleged bogus purchases, as was done by the Commissioner of Income Tax (Appeals) [CIT(A)].
The AO proceeded to levy penalties, noting that the assessee had failed to establish that the materials were purchased from the parties and actually used for its business.
The ITAT found that the purchases made by the alleged hawala parties were reflected in the books, and the corresponding sales from these purchases had not been disturbed. The Tribunal noted that once the purchases are reflected in the trading account and an addition has been made by applying a higher GP rate on an estimated basis, no penalty can be levied under Section 271(1)(c).
The bench noted that “In the quantum proceedings from the stage of the Tribunal, the addition has been restricted to by applying the GP rate of 12.5% on the alleged bogus purchases as was applied by the ld. CIT (A). Now penalty has been levied on such application of GP rate of 12.5% by the ld. AO holding that assessee has failed to establish that the material has been purchased from the parties and had actually been used for its business.”
Read More: Income Tax Case Digest: Addition on Bogus Purchases under Income Tax Act ( PART 2 )
The tribunal observed that all purchase details were shown in the books along with corresponding sales and the ITAT deleted the penalties levied by the AO, which was upheld by the CIT(A) for both assessment years.
The appeals of the assessee were allowed, and the penalties were deleted.
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The Mumbai ITAT, comprising Renu Jauhar (Accountant Member) and Amit Shukla (Judicial Member) allowed the assessee.
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