ITO Vs Ashok Industrial Corporation (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT) Mumbai dismissed the Revenue’s appeal against the order of the National Faceless Appeal Centre (NFAC), which had deleted the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. The penalty, amounting to ₹1,44,633, was imposed for the Assessment Year 2009-10 on the basis of an addition made for alleged bogus purchases. The CIT(A) had ruled that since the penalty was levied on an ad-hoc estimated income, it could not be sustained. The Revenue challenged this order, arguing that the assessee had failed to justify the genuineness of purchases and had accepted accommodation entries.
During the assessment, the total income was increased significantly after an addition of 12.5% of alleged bogus purchases amounting to ₹1.89 crore. The CIT(A) reduced this to 6.5%, and later, the ITAT further limited it to 2%. Based on this final adjustment, the Assessing Officer imposed a penalty of 100% of the tax sought to be evaded. However, the CIT(A) overturned the penalty, holding that penalties should not be imposed merely on income estimated on an ad-hoc basis. The Revenue relied on judicial precedents, including PCIT vs. S.V. Jiwani (Bombay HC) and CIT vs. Simit Sheth (Gujarat HC), arguing that additions on account of bogus purchases warrant penalty imposition.
