M. M. Brothers Vs ITO (ITAT Pune)
Penalty u/s 271(1)(c) Not Sustainable on Estimated GP Addition – ITAT Pune Deletes Rs 5.41 Lakh Penalty
The ITAT Pune allowed the assessee’s appeal & deleted penalty levied u/s 271(1)(c), holding that penalty cannot be imposed where quantum addition is made purely on estimation basis. In the quantum proceedings, the CIT(A) had directed estimation of gross profit @2.25% instead of sustaining bogus purchase addition, and penalty was later levied on such estimated income.
Relying on Bombay High Court judgment in PCIT vs. Colo Colour Pvt. Ltd., the Tribunal held that estimated additions do not automatically establish concealment or furnishing of inaccurate particulars, and therefore penalty provisions cannot be invoked merely on estimated income.
Accordingly, the order of CIT(A) was set aside & AO was directed to delete penalty of ₹5,41,176, rendering other legal grounds infructuous and allowing the appeal in full.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 26.12.2023 passed by Ld. CIT(A)/NFAC for the assessment year 2014-15.
2. The appellant has raised the following grounds of appeal :-
“1. The learned CIT(A) erred in confirming the penalty u/s 271(1)(c) of Rs.5,41,176 levied by the A.O. without appreciating that the specific limb/ charge of section 271(1)(c) on the basis of which the penalty proceedings were initiated was neither communicated by the A.O. in the asst. order nor in the notice u/s 274 r.w.s. 271(1)(c) and therefore, the penalty order u/s 271(1)(c) passed in the instant case was bad in law in view of the law laid down by Hon’ble Jurisdictional Bombay High Court in Mohd. Farhan Shaikh [434 ITR 1] and other decisions.
2. The assessee humbly prays that all the relevant facts pertaining to the legal issue raised in Ground No. 1 are already available on record and hence, the said issue may kindly be decided by Hon’ble ITAT without remanding the matter back to the CIT(A) to adjudicate this legal issue in view of the ratio laid down by Hon’ble Jurisdictional Bombay High Court in case of Coca Cola India (P) Ltd. [368 ITR 487].
3. Without prejudice to the above grounds, the learned CIT(A) erred in confirming the penalty u/s 271(1)(c) of Rs.5,41,176 levied by the A.O. without appreciating that in the quantum appeal, the CIT(A) had modified the basis for making the addition and hence, if at all, penalty was to be levied on the modified addition, then separate penalty proceedings u/s 271(1)(c) ought to have been initiated and levied by the CIT(A) and therefore, the penalty order passed by the A.O. was bad in law.
4. Without prejudice to the above grounds, the learned CIT(A) erred in confirming the penalty u/s 271(1)(c) of Rs.5,41,176 levied by the A.O. without appreciating that the addition was made by the CIT(A) on an estimate basis and therefore, as per the well settled law, no penalty u/s 271(1)(c) was leviable in respect of the above addition made on estimation basis.
5. The appellant craves leave to add/ alter/ amend any of the grounds of appeal.”
3. Facts of the case, in brief, are that the assessee is a partnership firm carrying on the wholesale business of steel & PVC pipes etc and has furnished its return of income on 30.11.2014 declaring an income of Rs.2,13,120/-. The case was selected for scrutiny under CASS. The Assessing Officer vide assessment order dated 29.11.2016 determined total income at Rs.37,18,924/- as against the income of Rs.2,13,120/- returned by the assessee. The above assessed income includes addition of Rs.33,70,804/- towards bogus purchases and other additions of Rs.1,35,000/-. The Assessing Officer also initiated penalty proceedings u/s 271(1)(c) of the IT Act.
