Case Law Details
Fancy Diamonds India Pvt Ltd Vs DCIT (ITAT Mumbai)
Introduction: In a ruling, the Income Tax Appellate Tribunal (ITAT) in Mumbai has provided significant relief to Fancy Diamonds India Pvt Ltd. The ITAT ruled that penalties under Section 271(1)(c) of the Income Tax Act, 1961, aren’t leviable on additions made purely on an estimated basis. This ruling came against the decision by the Commissioner of Income Tax (Appeals), who had confirmed the penalties for three assessment years under consideration.
Analysis: Fancy Diamonds India Pvt Ltd, engaged in the manufacturing and trading of diamonds, faced a reopening of assessments due to alleged bogus purchases from the Bhanwarlal Jain group. The Assessing Officer estimated profits from these supposed bogus purchases at 12.5%, a figure that the CIT(A) later reduced to 6%.
Penalties were subsequently levied under Section 271(1)(c) of the Income Tax Act for the three years under consideration, based on this estimation. However, the assessee contended that penalties couldn’t be levied on estimated additions, and this argument found favour with the ITAT.
The ITAT relied on past judgements from various High Courts and Tribunals that held penalty under Section 271(1)(c) as unsustainable when levied on estimated additions. The ITAT noted the absence of a definite finding on the quantum of income concealment and concluded that the penalties should be cancelled.
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