• Notification Date: 22-02-2023
  • Notification No: N/A

ITAT: No Penalty charged for Addition made on Estimated Basis

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) recently ruled that no penalty where addition is made on an estimated basis. M/s. V. K. Ispat & Alloys, the assessee firm is a reseller engaged in the business of trading in stationery, general items and derives income from business and profession. The assessee filed its return of income declaring the total income at Rs.3, 69,640/- for the assessment year 2010-11 and processed under section 143(1). 

The assessee’s case was reopened based on the investigation made by the Sales Tax Department, wherein it was found that the assessee was a beneficiary of bogus purchases from various hawala parties. During the impugned year, the assessee is said to have total purchase of Rs.1, 38, 95,843/- from certain parties which were stated to be entry providers as per the investigation made by the Sales Tax Department. 

It is stated that the assessee was one of the beneficiaries of receiving bogus purchase bills without actual delivery of goods or services. During the assessment proceeding, it is stated that the assessee has failed to produce the suppliers, brokers or transporters before the assessing officer and has also failed to prove the genuineness of the impugned purchases. The assessing officer made an addition of Rs.7, 75,388/- being 2.58% gross profit ratio + 3% addition made as VAT. The Coram comprising judicial members’ Shri Prashant maharishi, am and Ms. Kavitha Rajagopal observed that “We are of the view that the penalty under section 271(1) (c) of the Income Tax Act, 1961 cannot be levied where the addition is made on an estimated basis. We hereby delete the penalty levied by the A.O. and find No justification in the order of the ld. CIT (A).  The appeal filed by the assessee was allowed.