Om Sai Traders Vs ITO (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT) Mumbai has deleted the penalty imposed under Section 271(1)(c) on Om Sai Traders for Assessment Years 2010-11 and 2011-12. The penalty, amounting to ₹2,89,272 and ₹2,07,177 respectively, was levied on account of an estimated Gross Profit (GP) addition applied to alleged bogus purchases. The Assessing Officer (AO) had initially treated the entire purchases as bogus, leading to an addition of ₹74,89,235 for AY 2010-11 and ₹64,93,318 for AY 2011-12. However, in quantum proceedings, the Tribunal had restricted the addition by applying a 12.5% GP rate on these purchases.
The AO imposed the penalty on the ground that the assessee failed to prove that the purchases were made from genuine parties and utilized for business. However, ITAT Mumbai noted that the purchases were recorded in the books and corresponding sales were not disputed. The Tribunal observed that applying an estimated GP rate does not automatically imply concealment of income or furnishing of inaccurate particulars. ITAT emphasized that penalty cannot be levied merely on estimated additions.
Additionally, ITAT found that for AY 2009-10, in a similar case involving GP addition on alleged bogus purchases, the AO had himself dropped the penalty. This inconsistency further weakened the Revenue’s case for imposing penalties in the subsequent years. The Tribunal ruled that when income additions are based on estimates, it cannot constitute concealment or misrepresentation, warranting penalty under Section 271(1)(c).
