No Income Tax Penalty if Addition is Made on Estimated Basis on Alleged Bogus Purchase: ITAT [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that no income tax penalty could be imposed on an alleged bogus purchase if the addition was made on an estimated basis.

The AO, on the basis of completed assessment framed under section 143(3) read with 153C of the Income Tax Act, 1961 determined the total income by making addition of the commission income @ 0.15% in case of assessee, Goldstar Finvest Pvt being an entry provider, and penalty proceedings were initiated by way of issuance of notice under Section 274 read with Section 271 of the Income Tax Act 1961.

Declining the contentions raised by the assessee that very initiation of penalty proceedings was bad in law as valid notice has not been issued to the assessee, the Assessing Officer (AO) reached the conclusion that the assessee had concealed correct nature/particulars of its income and thereby levied the penalty @ 100% of the tax on the income sought to be evaded under Section 271(1)(c) of the Income Tax Act.

Mukesh Choksh, on behalf of the assessee contended that the addition in this case had merely been made on the basis of estimation and as such penalty under section 271(1)(c) of the Income Tax Act was not leviable, placing reliance upon the decision of Bombay High Court in Md. Farhan A Sheikh vs. ACIT.

The two-member Bench of Kuldip Singh, (Judicial Member) and OM Prakash Kant, (Accountant Member) allowed the appeal and deleted the penalty holding that the entire addition in this case was on estimation basis and at no point of time Revenue Authorities had reached the specific conclusion that the assessee had concealed the particulars of income or had furnished inaccurate particulars of income.

The revenue rather made the addition on the basis of information received from the Sales Tax Department without conducting any independent enquiry as to the alleged bogus purchases, the Bench further observed.

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