Goldstar Finvest P. Ltd, Mumbai vs. ACIT - (Income Tax Appellate Tribunal) (28 Apr 2023)

When the entire addition has been made on the basis of estimation, penalty levied is not sustainable

MANU/IU/0332/2023

Direct Taxation

In the basis of completed assessment framed under Section 143(3) read with 153C of the Income Tax Act, 1961 (IT Act) determining the total income at Rs.4,63,769 by making addition of the commission income @ 0.15% in case of assessee being an entry provider, penalty proceedings were initiated by way of issuance of notice under section 274 read with section 271 of the IT Act.

Declining the contentions raised by the assessee that very initiation of penalty proceedings were bad in law as valid notice has not been issued to the assessee, the Assessing Officer (AO) reached the conclusion that the assessee has concealed correct nature/particulars of its income and thereby levied the penalty under Section 271(1)(c) of the Act. The assessee carried the matter before the Learned CIT(A) by way of filing appeal who has confirmed the penalty levied by the AO by dismissing the appeal.

Since the AO has failed to initiate the penalty proceedings under Section 271(1)(c) of the IT Act by issuing the valid notice, penalty levied by the AO and confirmed by the learned CIT(A) is not sustainable in the eyes of law as the assessee has never been informed about the charges framed to initiate the penalty proceedings through statutory notice. Furthermore, undisputedly entire addition in present case was made/confirmed by the AO as well as the learned CIT(A) on the basis of estimation and guess work on the alleged bogus entry provided by the assessee during the year under consideration initially @ 100% by the AO, which was reduced by the learned CIT(A) to 2% of the turnover, which was further reduced by the Tribunal to 0.15% of total bogus entries provided.

When the entire addition has been made on the basis of estimation, penalty levied by the AO and sustained by the learned CIT(A) is not sustainable. So when the basis for initiation of penalty proceedings have been altered or modified by the appellate authority the AO cannot proceed with the penalty proceedings as has been held by the Hon'ble Delhi High Court in case of Pr. CIT vs. Fortune Technocomps (P) Ltd.

When entire addition in this case is on estimation basis and at no point of time Revenue Authorities have reached the specific conclusion that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income rather made the addition on the basis of information received from Sales Tax Department without conducting any independent enquiry as to the alleged bogus purchases, the penalty levied by the AO and confirmed by the learned CIT(A) is not sustainable in the eyes of law. Penalty levied by the AO and confirmed by the Learned CIT(A) is not sustainable in the eyes of law, hence ordered to be deleted. The appeal filed by the assessee is allowed.

Tags : PENALTY LEVY LEGALITY