The Income Tax Appellate Tribunal (ITAT) Mumbai Bench held that penalty under section 271(1)(c) of Income Tax Act, 1961 is not leviable on estimated addition.
The assessee L.S. Diamonds is engaged in the business of export of diamonds. During the assessment proceedings Assessing officer made an addition on account of bogus purchases alleged to have been made by the assessee.
The Assessing Officer made an addition at 100% of the value of alleged bogus purchases and the same was reduced to 5% by the CIT(A) in assessment year 2009-10 and 3% to 5% in Assessment year 2007-08.
After the orders passed by the CIT(A), the Assessing Officer levied a penalty of Rs. 1,92,040/- in Assessment year 2007-08 and Rs. 1,60,120/- in Assessment year 2009-10 under section 271(1)(c) of the Income Tax Act on account of filing of inaccurate particulars of income.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) {CIT(A)}, who dismissed the appeal of the assessee. Thus, the assessee filed a second appeal before the tribunal.
During the proceedings, Akshay J. Shah, the counsel for the assessee submitted that an addition has been made on an estimated basis on account of alleged bogus purchases. The Penalty under section 271(1)(c) of the Income Tax Act is not leviable on estimated addition.
Manoj Kumar Sinha, Departmental representatives argued that additions have been made on the basis that the assessee has booked bogus purchases in the books of account which has resulted in furnishing inaccurate particulars of income.
The tribunal, relying upon the decision of Fancy Diamonds India Pvt. Ltd observed that the penalty under section 271(1)(c) of the Income Tax Act is not leviable if the addition is made on an estimated basis.
The tribunal after reviewing the facts and submissions of both parties the single-member bench of B.R. Baskaran (Accountant Member) and Pavan Kumar Gadale (Judicial Member) relied upon the decision of the Rajasthan High Court in the case of Krishi Tyre Retreading and Rubber Industries held that penalty under section 271(1)(c) of the Income Tax Act is not leviable on addition made on an estimated basis.
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