Case Law Details
Jaisingh H. Solanki Vs ITO (ITAT Mumbai)
Introduction: In a recent decision, the Income Tax Appellate Tribunal (ITAT) Mumbai addressed an appeal filed by Jaisingh H. Solanki against the order of the Commissioner of Income Tax (Appeals)/NFAC, Delhi. The dispute revolved around the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2010-11. The ITAT’s ruling focused on the AO’s levy of the penalty, which was based on estimated quantum additions derived from information provided by the Sales Tax Department.
Detailed Analysis: Jaisingh H. Solanki, an individual and proprietor of M/s. Blue Star International, engaged in the trading of ferrous and non-ferrous metals. The AO initiated proceedings after receiving information from the Sales Tax Department indicating that the assessee benefited from accommodation entries/bills amounting to Rs.2,35,64,090. The AO, considering the inability of the assessee to produce certain documents, estimated the profit from these transactions at Rs.29,45,511. The Ld. CIT(A) partly allowed the appeal, reducing the estimated addition to Rs.12,04,124.
Subsequently, the AO levied a penalty of Rs.5,27,640 under section 271(1)(c) of the Act. The assessee, aggrieved by the penalty, appealed to the Ld. CIT(A)/NFAC, who confirmed the penalty. The appeal was then brought before the ITAT Mumbai.
Considering the inherently subjective nature of the estimated quantum addition, the ITAT relied on precedents from various High Courts. The decisions cited emphasized that penalties should not be levied on estimated additions. In line with this principle, the ITAT concluded that no penalty was warranted in this case.
Conclusion: The ITAT Mumbai, recognizing the subjectivity involved in estimated quantum additions, deleted the penalty imposed under section 271(1)(c) of the Income Tax Act. The decision aligns with the stance of various High Courts that penalties should not be levied solely on estimated additions. Jaisingh H. Solanki’s appeal was allowed, providing relief from the penalty imposed by the AO and upheld by the Ld. CIT(A)/NFAC.
This case underscores the importance of considering the nature of additions and the principle of fairness while determining the imposition of penalties under the Income Tax Act.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi dated 24.02.2023 for AY. 2010-11 confirming the action of the AO levying penalty u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter “the Act”).
2. None appeared for assessee but has filed written submission. At the outset, it is noted that there is delay of 52 days and the assessee has filed a sworn affidavit dated 12.09.2022. After going through the contents of the affidavit, we are of the opinion that there was reasonable cause for belated filing of the appeal. Therefore, we condone the delay and proceed to hear the penalty appeal on its own merit.
3. Brief facts are that the assessee is an individual, proprietor of M/s. Blue Star International engaged in business of Trading (retailer/wholesaler) of Ferrous and Non-Ferrous Metal. And had filed return of income showing total income of Rs. 12,28,236/-. Later, the AO issued notice u/s 148 of the Act and reopened the assessment stating that he has received information from the Sales Tax Department that the assessee was a beneficiary of accommodation entries/bills from the parties named therein to the tune of Rs.2,35,64,090/-. Pursuant to the notices by the AO, the assessee replied that the transaction with six (6) parties named therein was in fact genuine and furnished the relevant documents to substantiate the sale, (i) Copy of purchase bills (ii) Sales bills (iii) Ledger account of the parties in the books of the assessee (iv) Details of payments made to them through cheque (v) Corresponding sales made etc. The AO acknowledged that the assessee filed the aforesaid documents but since the assessee could not file the delivery challans, lorry receipt etc; and since the six (6) parties had admitted before the Sales Tax Department that they were into providing accommodation entries and since assessee couldn’t produce the suppliers for verification, the AO estimated the profit earned from bogus purchase of Rs.2,35,64,090/- @ 12.5% which he computed at Rs.29,45,51 1/-. On appeal, the Ld. CIT(A) confirmed the action of the AO but partly allowed the appeal of the assessee by directing the AO to reduce the profit already declared by assessee on these purchases which brought down the estimated addition to Rs. 12,04,124/-.
4. Thereafter, the AO issued notice u/s 271(1)(c) of the Act on 03.2016 and after considering the reply of the assessee levied penalty of Rs.5,27,640/- by order dated 29.03.2018. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A)/NFAC who was pleased to confirm the same. Aggrieved, the assessee is before this Tribunal.
5. Having heard the Ld. DR for the revenue and after perusal of the written submission filed by the assessee dated 22.09.2023, the assessee has assailed the action of the Ld. CIT(A) confirming the penalty of Rs.5,27,640/- on penalty levied by the AO u/s 271(1)(c) of the Act. As noted (supra), the basis of estimated addition in the quantum assessment was based upon information from the Sales Tax Department that the assessee was a beneficiary of accommodation bills to the tune of Rs.2,35,64,090/-. So the AO called upon the assessee to file relevant documents to substantiate the purchase made by the assessee from the six (6) parties named therein. Pursuant to the same, the assessee filed the relevant documents (i) Copy of purchase bills (ii) Sales bills (iii) Ledger account of the parties in the books of the assessee (iv) Details of payments made to them through cheque (v) Corresponding sales made etc. and claimed that the purchase for the parties named therein were genuine but the AO didn’t accept the explanation/relevant documents and he estimated the profit embedded in such purchases and estimated the profit @ 12.5% of 2,35,64,090/- which was to the tune of Rs.29,45,511/-. On appeal, the Ld. CIT(A) confirmed the addition but directed AO to reduce the gross profit already shown by assessee. Thus estimated addition got reduced to Rs. 12,04,124/-. Thereafter, the AO has levied the penalty to the tune of Rs.5,27,640/- u/s 271(1)(c) of the Act for fault of “concealing of income by furnishing inaccurate particulars of income”. And the Ld. CIT(A) has confirmed the action of the AO. And assessee is aggrieved by the action of Ld. CIT(A) confirming the penalty estimated addition made in question assessment.
6. Bearing in mind the fact that the related quantum addition was purely on estimated basis with inherent subjectivity involved, we are of the opinion that no penalty is warranted. For taking such an action, we rely on the following decisions of the Hon’ble High Courts wherein the Hon’ble High Courts have upheld the action of Tribunal deleting penalty levied on estimated quantum addition as under: –
“CIT Vs. Krishi Tyre Retreadign and Rubber Industries (360 ITR 580) (Raj)
CIT Vs. Sangrur Vanaspati Mills Ltd. (303 ITR 53) (P & H)
CIT Vs. Subhash Trading Co. Ltd. (221 ITR 110) (Guj).”
7. Thus, as noted (supra), the issue as to whether the penalty u/s 271(1)(c) of the Act be levied on estimated quantum addition is no longer res-integra, therefore, we are inclined to direct the deletion of the penalty levied to the tune of Rs.5,27,640/-.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 17/10/2023.
