Santosh Singh Hukam Singh Karnawat Vs ITO (ITAT Surat)
Penalty on Estimated Bogus Purchases Deleted – ITAT Surat Follows Consistent Jurisprudence- When Purchases Are Bogus But Profit Is Estimated — Penalty Fails in Law
Assessee, engaged in diamond trading, was alleged to have made bogus purchases of ₹1,11,61,150 from Euro Diam & Little Diam following search findings in the Bhanwarlal Jain accommodation-entry group. AO rejected Assessee’s evidences & treated the entire purchases as bogus, levying penalty u/s 271(1)(c) for concealment. CIT(A) upheld the penalty but restricted it only to tax on 5% after taking note of the earlier ITAT order in quantum proceedings.
In quantum, Tribunal vide order dated 11.01.2019 had already held that though purchases might not have been made from the named parties, sales were accepted, stock records existed, & therefore only the embedded profit could be taxed. Applying industry practice, Tribunal restricted the addition to 5% of disputed purchases.
Before Tribunal in penalty appeal, Assessee argued that where the addition rests purely on estimation, and no specific adverse material shows actual concealment, penalty cannot survive. Tribunal examined several judicial precedents including Hari Gopal vs CIT (258 ITR 85), CIT vs Sangrur Vanaspati Mills (303 ITR 53), DCIT vs Marksans Pharma, Boparai (P) Ltd., Remi Electrotechnik Ltd., Anita L. Ghadge vs DCIT, all holding that penalty u/s 271(1)(c) is not leviable where additions are made on estimate or ad-hoc basis without concrete finding of concealment.
Tribunal held that the 5% disallowance sustained in quantum was purely an estimation of profit element & not a finding of concealment or furnishing of inaccurate particulars. As the essential condition for invoking s. 271(1)(c) was absent, the penalty could not stand. Tribunal accordingly deleted the penalty & condoned the minor delay of 40 days in filing the appeal.
FULL TEXT OF THE ORDER OF ITAT SURAT
