Sandeep Kewalchand Mehta Vs ACIT (ITAT Mumbai)
The ITAT Mumbai considered an appeal filed by Sandeep Kewalchand Mehta against the order of the NFAC, Delhi, dated 01.10.2024, confirming a penalty of ₹1,84,771 under Section 271(1)(c) of the Income-tax Act, 1961 for Assessment Year 2009-10. The penalty arose from reassessment proceedings under Sections 143(3) read with 147, wherein the Assessing Officer, relying on information received from the Sales Tax Department, identified bogus purchases from hawala parties amounting to ₹43,48,834 and added the entire amount to the assessee’s income. In quantum appeal proceedings, the Tribunal, by order dated 31.10.2017, restricted the addition to 12.5% of the bogus purchases, representing the profit element embedded in those transactions. Subsequently, penalty proceedings resulted in the levy of ₹1,84,771, which was upheld by the CIT(A).
Before the Tribunal, the assessee contended that the addition sustained in quantum proceedings was based on an estimation of profit and, therefore, could not justify a penalty for concealment of income under Section 271(1)(c). Reliance was placed on DCIT v. Unisynth Chemicals, ITA No. 5967/Mum/2014, and CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC), to argue that penalty should not be imposed merely on estimated additions. The Department opposed this contention, submitting that the Assessing Officer had originally added the entire amount of bogus purchases and that the Tribunal had merely restricted the addition to the profit element attributable to those purchases. According to the Revenue, this was not a case of an arbitrary estimated addition but one involving identified bogus purchase transactions, and the penalty was therefore justified.
The ITAT Mumbai rejected the assessee’s contention and held that restriction of the quantum addition to 12.5% of bogus purchases did not automatically make the corresponding penalty unsustainable. The Tribunal observed that the bogus nature of the purchases was established on the record and that the quantum addition had been restricted only to the profit element embedded in those purchases. Consequently, the assessee had concealed income to that extent under the guise of purchases subsequently found to be bogus. The Tribunal distinguished the circumstances from a case involving merely an estimated profit addition without established concealment and found no merit in the plea for deletion of penalty. Considering the facts in their entirety, the Tribunal confirmed the penalty of ₹1,84,771 under Section 271(1)(c) and dismissed the assessee’s appeal. The order was pronounced on 19 February 2025.
Cases Discussed
- DCIT Vs M/s Unisynth Chemicals (ITAT Mumbai); ITA No. 5967/Mum/2014. Relied upon by the assessee in support of the proposition that penalty should not be imposed on an estimated profit addition. The complete date and an exact TaxGuru publication URL could not be verified from the supplied order.
- Commissioner of Income Tax Vs Reliance Petroproducts Pvt. Ltd. (Supreme Court); (2010) 322 ITR 158 (SC). Relied upon by the assessee against imposition of concealment penalty. The decision is discussed in this TaxGuru publication. The Tribunal nevertheless sustained the penalty on the facts of the present case.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
This appeal by the assessee is preferred against the order dated 01/10/2024 by NFAC, Delhi [hereinafter ‘the ld. CIT(A)], pertaining to AY 2009-10.
2. The sum and substance of the grievance of the assessee is that the ld. CIT(A) erred in confirming the levy of penalty u/s 271(1)(c) of the Act amounting to Rs. 1,84,771/- on alleged estimated profits on the addition of unverified purchases. The roots of the levy of penalty lie in the assessment order dated 30/03/2015 framed u/s 143(3) r.w.s. 147 of the Act wherein, during the course of the scrutiny assessment proceedings, on the basis of the information received from the Sales-tax authorities, the AO came to know that the assessee has made bogus purchases from hawala parties amounting to Rs.43,48,834/-. The entire amount was added to the income of the assessee.
3. The quarrel travelled up to the Tribunal and the Tribunal vide its order dated 31/10/2017, restricted the quantum addition at 12.5% of the bogus purchases.
3.1. Pursuant to the order of the Tribunal, penalty proceedings were initiated u/s 271(1)(c) of the Act, and a penalty of Rs.1,84,771/- was levied.
4. Before us, the ld. Counsel for the assessee vehemently stated that since the quantum addition has been estimated, no penalty should be levied on estimation of profit. Strong reliance was placed on the decision of the Co-ordinate Bench in the case of DCIT vs. M/s. Unisynth Chemicals in ITA No. 5967/Mum/2014 and the judgment of the Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. (2010) 322 ITR (SC). It is the say of the ld. Counsel that considering several precedents, penalty should not be levied for the impugned estimated addition.
5. Per contra, the ld. D/R pointed out that no estimation was made. The AO added the entire bogus purchases whereas the Tribunal restricted the addition to 12.5% of the bogus purchases being the profit element imbibed in such bogus purchases. Therefore, it cannot be said that the profit has been estimated and the penalty has been levied on estimated profits.
6. We have given thoughtful consideration to the rival contentions. The undisputed fact is that the additions were made on account of bogus purchases and the quarrel travelled up to the Tribunal and the Tribunal restricted the quantum addition at 12.5% of the bogus purchases. We do not find any merit in the contention of the ld. Counsel that the profit has been estimated and the penalty has been levied on estimated profit. Facts on record show that there were bogus purchases and only the profit element has been added which means that the assesse has concealed the income to this extent in the garb of purchases which turned out to be bogus. Therefore, considering the facts of the case in totality, we have no hesitation in confirming the penalty so levied u/s 271(1)(c) of the Act. Accordingly, the effective ground/s raised by the assessee are dismissed.
7. In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on 19th February, 2025 at Mumbai.
