KAMAL H. SHAH ,MUMBAI V. INCOME TAX OFFICER WARD, 18(2)(1), MUMBAI

ITA 5542/MUM/2024

AI Insights

The case involves Shri Kamal H Shah, who appealed against the penalty imposed by the Income Tax Officer (ITO) under section 271(1)(c) of the Income-tax Act, 1961, following an addition to his income based on estimated gross profit from bogus purchases. Initially, the ITO made a 100% addition to the income, which was later restricted to 12.5% by the Tribunal. The penalty imposed was 100% of the tax sought to be evaded, amounting to Rs.3,98,700. The assessee's appeal against the penalty was rejected by the CIT(A), leading to the current appeal before the ITAT. The Tribunal, referencing a similar case (Dombivali Paper Mfg Co. Pvt Ltd vs ACIT), found that no penalty should be imposed when the addition to income is based on an estimate of gross profit.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474427 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Other Referred Cases: Dombivali Paper Mfg Co. Pvt Ltd vs ACIT, Circle-1, Kalyan in ITA No.2734/Mum/2023, CIT vs Krishi Tyre Retreading & Rubber Industries, CIT vs Whitelene Chemicals
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASIF KAR MALI
• Assessee Lawyers: MANDAR VAIDYA
• Keywords: Set aside; Bogus purchase; Bogus
• Section: 250; 271(1)(c)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “J(SMC)”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No.5542/Mum/2024 (Assessment Year : 2009-10) Shri Kamal H Shah Gopal Niwas, Room NO.14, 5th Floor, 133, Princess Street, Mumbai-400 002 PAN : AAHPS2365M vs CIT A NFAC / ITO-18(2)(1) Piramal Chamber, Lalbaug Mumbai-40 0 012 APPELLANT RESPONDENT Assessee by : Shri Mandar Vaidya Respondent by : Shri Asif Karmali (SR DR) Date of hearing : 17/01/2025 Date of pronouncement : 21/01/2025 O R D E R PER ANIKESH BANERJEE: Instant appeal of the assessee was filed against the order of the National Faceless Appeal Centre (NFAC), Delhi *for brevity, ‘Ld.CIT(A)’) passed under section 250 of the Income-tax Act, 1961 (for brevity, ‘the Act’), date of order 25/05/2023 for A.Y. 2009-10. The impugned order was emanated from the order 2 ITA No.5542/Mum/2024 Kamal H Shah of the Learned Income-tax Officer, Ward 18(2)(1), Mumbai (in brevity, ‘the AO’), passed under section 271(1)(c) of the Act, date of order 27/03/2018. 2. The appeal of the assessee was filed with a delay of 481 days. The assessee filed an affidavit executed on 24/09/2024 and the delay was duly explained. The Ld.DR has not made any objection against the assessee’s submission for condoning the delay of 481 days. The reasons for the delay is well explained. Accordingly, we condoned the delay fo 481 days and the appeal is admitted for adjudication. 3. The appeal of the assessee was filed against the order under section 271(1)(c) of the Act and penalty imposed amount to Rs.3,98,700/-. The assessment was completed and addition was made related to the bogus purchases @12.5% of the gross profit. The order was assailed before the Ld.CIT(A) as also before the ITAT, but the assessee has failed. Then the penalty proceedings were initiated under section 271(1)(c) and penalty was imposed in respect of income amount to Rs.11,76,195/- and penalty levied at Rs.3,98,700/- being 100% of the tax sought to be evaded. The penalty order was assailed before the Ld.CIT(A), but the Ld.CIT(A) rejected the appeal of the assessee. Finally the appeal was filed by challenging the order of the Ld. CIT(A) before the ITAT. 4. The Ld.AR placed that the addition was made on the basis of the gross profit @12.5% on the bogus purchase and assessee has admitted the addition before the Ld.AO. But the penalty on the addition of GP on bogus purchase is duly unjustified and which is covered by the order of the co-ordinate bench of ITAT, Mumbai Bench “D” in the case of Dombivali Paper Mfg Co. Pvt Ltd vs ACIT, Circle-1, Kalyan in ITA No.2734/Mum/2023, date of pronouncement 16/12/2023. The relevant paragraphs No.9 & 10 are reproduced herebelow:- 3 ITA No.5542/Mum/2024 Kamal H Shah “9. It is a matter of record that initially an addition of 100% of alleged bogus purchases was made, which was restricted by this Tribunal to 12.5% by order dated 25.03.2019. Thus, the addition as restricted by this Tribunal works out to Rs.89,628/-, which was essentially on the basis of estimate of gross profit. The issue about, justification of imposition of penalty, where the addition is made on the basis of an estimate is no longer res integra and is covered by certain decisions of this Tribunal as also various High Courts. A useful reference in this regard can be made to the decision of Hon’ble Rajasthan High Court in the case of CIT vs Krishi Tyre Retreading & Rubber Industries (supra) and Hon’ble Gujarat High Court in the case of CIT vs Whitelene Chemicals (supra). In Whitelene Chemicals (supra) one of the reason for imposition of penalty was that there were additions made in the income after rejection of book results on the basis of fair gross profit ratio. The Tribunal in that case found that no penalty can be imposed when the profit was estimated on the basis of fair gross profit ratio, which order came to be confirmed by the Hon’ble High Court. It can thus be seen that when the addition is made on the basis of an estimate, no penalty could have been levied. 10. A perusal of the order passed by the First Appellate court in this case would indicate that this aspect about the original addition being restricted to 12.5% on the basis of an estimate as to gross profit and the consequent effect on the levy of penalty has not been considered by the learned CIT(A). This aspect being clearly borne out of record, could have been considered by the learned CIT(A), notwithstanding that, the assessee had, allegedly not responded to the various notices/communications.” We also find that the addition was confirmed on the basis of the addition of gross profit @12.5% on the bogus purchases. The issue is squarely covered by the order of the co-ordinate bench of ITAT, Mumbai Benches and which is binding on us. So accordingly, the impugned appeal order is set aside and the penalty imposed on the assessee amount to Rs.3,98,700/- is quashed. 5. In the result, the appeal of the assessee bearing ITA 5542/Mum/2023 is allowed. Order pronounced in the open court on 21st day of January, 2025. Sd/- sd/- (PRABHASH SHANKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, दिन ांक/Dated: 21/12/2024 Pavanan 4 ITA No.5542/Mum/2024 Kamal H Shah Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकर आयुक्त CIT 4. दवभ गीय प्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्ड फ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai "