Case Law Details
L.S. Diamonds Vs CIT (ITAT Mumbai)
Introduction: The Income Tax Appellate Tribunal (ITAT) Mumbai addressed a case involving L.S. Diamonds and the Commissioner of Income Tax (CIT). The issue revolved around the penalty imposed under section 271(1)(c) of the Income Tax Act for alleged inaccurate particulars of income due to estimated additions.
Analysis: In the assessment, the Assessing Officer made additions to the income of the assessee based on alleged bogus purchases. These additions were made on an estimated basis, and the CIT(A) partially confirmed the additions. Subsequently, penalties were levied by the Assessing Officer, which were upheld by the CIT(A).
However, the ITAT Mumbai, citing the precedent set by a coordinate bench in the case of Fancy Diamonds India Pvt. Ltd., ruled that penalty under section 271(1)(c) of the Act is not applicable when additions are made on an estimated basis. The ITAT referred to decisions by the Hon’ble Rajasthan and Gujarat High Courts, stating that penalties on estimated additions are unsustainable.
Conclusion: The ITAT Mumbai’s ruling in favor of L.S. Diamonds clarifies that penalties under section 271(1)(c) of the Income Tax Act cannot be imposed when additions are based on estimation rather than concrete evidence of concealment. This decision aligns with the legal principle that penalties should not be levied on estimated additions, providing relief to the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Both the appeals filed by the assessee are directed against the orders passed by the learned CIT(A), National Faceless Appeal Centre, Delhi and they relate to A.Y. 2009-10 & 2007-08. In both the appeals the assessee is aggrieved by the decision of the learned CIT(A) in confirming the penalty levied under section 271(1)(c) of the Act by the Assessing Officer. Since the underlying facts in both the appeals are identical in nature, they were heard together and are being disposed of by this common order for the sake of convenience.
2. We heard both the parties and perused the record. The assessee is engaged in the business of export of diamonds. In both the years under consideration, the Assessing Officer made addition on account of bogus purchases alleged to have been made by the assessee. The Assessing Officer made addition at 100% of the value of alleged bogus purchases and the same was reduced to 5% by the learned CIT(A) in A.Y. 2009-10 and 3% to 5% in A.Y. 2007-08. Thus the addition in both the years was confirmed by Ld CIT(A) on estimated basis. After the orders passed by the learned CIT(A), the Assessing Officer levied penalty of Rs. 1,92,040/- in A.Y. 2007-08 and Rs. 1,60,120/- in A.Y. 2009-10 under section 271(1)(c) of the Act on account of filing of inaccurate particulars of income.
3. In the appellate proceedings, the learned CIT(A) confirmed the penalty levied by the Assessing Officer in both the years. Hence, the assessee has filed these appeals.
4. The main contention of learned AR is that the addition has been made on estimated basis on account of alleged bogus purchases. It is submitted that it is a well settled proposition of law that the penalty under section 271(1)(c) of the Act is not leviable on estimated addition. In support of this proposition learned AR placed his reliance on the decision rendered by the Coordinate Bench in the case of M/s. Fancy Diamonds India Pvt. Ltd. (ITA No. 5384/Mum/2019 dated 17.6.2022). Accordingly he prayed for the deletion of the penalty in both the years.
5. Learned DR, on the contrary, supported the orders passed by the learned CIT(A). He submitted that the additions have been made on the basis that the assessee has booked bogus purchases in the books of account which has resulted in furnishing of inaccurate particulars of income. Accordingly he contended that the orders passed by the learned CIT(A) should be confirmed.
6. As submitted by learned AR the Coordinate Bench in the case of Fancy Diamonds India Pvt. Ltd. (supra) has taken the view that the penalty under section 271(1)(c) of the Act is not leviable, if the addition is made on estimated basis. In this regard the Coordinate Bench has taken support of the decision rendered by Hon’ble Rajasthan High Court in the case of Krishi Tyre Retreading and Rubber Industries (360 ITR 580) and decision rendered by Hon’ble Gujarat High Court in the case of Subhash Trading Co. Ltd. (221 ITR 110). For the sake of convenience we extract below the operative portion of the order passed by the Coordinate Bench in the above said case :-
“9. We have heard the submissions made by rival sides and have examined the orders of the authorities below. Undisputedly, the additions made on account of bogus purchases were partially confirmed by the Tribunal. The assessee filed to discharge its onus in proving genuineness of the purchases and dealers. During assessment proceedings, the addition was made on estimation @ 12.5%. In the first appeal, the addition was restricted to 3% and on further appeal to the Tribunal by the Revenue, the addition was enhanced to 6%. The entire addition right from assessment stage to the Tribunal was merely on estimations. There is no definite finding on the quantum of concealment of income. It is an accepted legal position that penalty under section 271(l)(c) of the Act levied on additions made merely on estimations is unsustainable.
10. The Hon’ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries reported as 360 ITR 580 has held that where addition is made purely on estimate basis, no penalty u/s. 271(l)(c) of the Act is leviable. Similar view has been expressed by Ho’ble Punjab & Haryana High court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. reported as 303 ITR 53. The Hon’ble High Court approving the order of Tribunal held that when, the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty u/s. 271(l)(c) of the Act is not leviable. The Hon’ble Gujarat High Court in the case of CIT vs. Subhash Trading Co. Ltd. reported as 221 ITR 110 has taken a similar view in respect of penalty levied u/s. 271(l)(c) of the Act on estimated additions. There are catena of decisions by different High Courts and various Benches of the Tribunal wherein penalty levied u/s. 271(l)(c) of the Act on estimated addition has been held to be unsustainable.”
7. Fact available in the present case are identical with the facts available in the case of Fancy Diamonds India Pvt. Ltd. (referred supra). Accordingly following the decision rendered by the Coordinate Bench in the above said case, which in turn has relied on the decision rendered by Hon’ble Rajasthan and Gujarat High Court, we hold that the penalty under section 271(1)(c) of the Act is not leviable on addition made on estimated basis. Accordingly, we set aside the orders passed by the learned CIT(A) in both the years and direct the Assessing Officer to delete the penalty levied under section 271(1)(c) of the Act in both the years under consideration.
8. In the result, both the appeals filed by the assessee are allowed.
Pronounced in the open court on 6.7.2023.
