Penalty u/s  271(1)(c) Unjustified on Ad-Hoc Estimated Income: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that a penalty under Section 271(1)(c) of Income Tax Act,1961 could not be sustained when based on ad-hoc estimated income.

The Revenue-appellant,appealed against the order dated June 21, 2024, passed by Commissioner of Income Tax(Appeals)[CIT(A)], which allowed the appeal against the penalty imposed under Section 271(1)(c) for the Assessment Year(AY) 2009-10.in this case,Ashok Industrial Corporation,respondent-assessee, filed its return on September 29, 2009, declaring an income of ₹89,730.

The assessment was later completed on March 19, 2015, under Section 143(3) read with Section 147, determining the income at ₹24,54,320. The CIT(A) added 12.5% of non-genuine purchases amounting to ₹23,64,586, which was later reduced to 6.5%. The ITAT further lowered it to 2% of the alleged bogus purchases.

The Assessing Officer ( AO ) imposed a penalty of ₹1,44,633 under Section 271(1)(c), citing inaccurate particulars of income. The CIT(A) later deleted the penalty, stating it was based on an ad-hoc estimation of 2% of alleged bogus purchases.

How to Compute Income from Salary with Tax Planning, Click Here

Aggrieved by the order of the CIT(A) the revenue appealed before the tribunal.

The two member bench comprising Rahul Chaudhary ( Judicial Member ) and Om Prakash Kant ( Accountant Member ) considered submissions from both sides and reviewed the records, including orders from lower authorities and judicial precedents.

It was undisputed that for AY 2009-10, the ITAT had restricted the addition to 2% of the alleged bogus purchases amounting to ₹1,89,16,685. Consequently, a penalty of ₹1,44,633 was imposed under Section 271(1)(c), being 100% of the tax sought to be evaded.

Read More: Penalty u/s 271(1)(c) Cannot be Imposed when Income Determined on Estimate Basis: ITAT

The CIT(A) deleted the penalty, stating that it was based on an ad-hoc estimated income. During the hearing, the appellant’s representative referred to the tribunal’s order dated October 3, 2024, for AYs 2011-12 and 2012-13, where it was held that penalties on estimated gross profit were unjustified.

The appellate tribunal cited its earlier ruling in Fancy Diamonds India Pvt Ltd vs. DCIT, affirming that penalties could not be imposed on estimated additions. It also relied on decisions from various High Courts, including the Rajasthan, Punjab & Haryana, and Gujarat High Courts, which held that penalties under Section 271(1)(c) were unsustainable when income was determined on an estimated basis.

How to Compute Income from Salary with Tax Planning, Click Here

Following these precedents, the tribunal found no justification for imposing a penalty for concealment or furnishing inaccurate particulars of income. It set aside the CIT(A)’s order and directed the deletion of the penalty. There was no reason to take a different view from the ITAT’s decisions in the assessee’s cases for earlier years.

In short,the appeal filed by the revenue was dismissed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates