2021 (9) TMI 1370 - AT - Income Tax

Penalty for Alleged Bogus Purchases Upheld by ITAT: No Willful Concealment Found

The ITAT upheld the deletion of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 by the Ld.CIT(A). The case involved alleged bogus ... Penalty u/s 271(1)(c) - Bogus purchases - assessee has failed to substantiate the transactions claimed in its return of income thereby evaded taxes to that extent - CIT-A deleted the penalty levy - HELD THAT:- Disallowances has been made on an estimated basis on account of the non production of suppliers before the AO. The purchase vouchers were duly produced and the payments were through banking channel. In these backgrounds, in our considered opinion assessee cannot be visited with the rigours of penalty u.s 271(1)(c). As a matter of fact, on many occasions, on similar circumstances in quantum proceedings, the disallowance itself has been deleted. In our considered opinion, on the facts and circumstances of the case assessee cannot be said to have been guilty of concealment or furnishing of inaccurate particulars of income. In this regard, we draw support from the decision of the State of Orissa [1969 (8) TMI 31 - SUPREME COURT] where in it was held that the authority may not levy the penalty, if the conduct of the assessee is not found to be contumacious. Tax effect in this case is below the limit fixed by CBDT for filing appeals before ITAT. The revenue has tried to make out a case that since the addition was made pursuant to information from Sales tax department, this penalty appeal falls in the exception carved out in the CBDT circular regarding appeals arising out of additions made pursuant to information from outside agencies. We are of the opinion that this plea is not tenable inasmuch as once revenue accepts that penalty is levied on outside agency information, the penalty levied will have no legs to stand. We delete the levy of penalty - Decided in favour of assessee. Issues:- Penalty under section 271(1)(c) of the Income Tax Act, 1961.- Application of Explanation-1 to section 271(1)(c) of the Act.- Applicability of CBDT Circular no.17/2019 on tax effect.- Justification for deleting penalty by the Ld.CIT(A).Analysis:Issue 1: Penalty under section 271(1)(c) of the Income Tax Act, 1961:The case involved the imposition of a penalty on the assessee for alleged bogus purchases. The Assessing Officer (AO) added a sum to the total income based on information from the Sales Tax department. The AO imposed a penalty of Rs. 3,57,078, being 100% of the tax evaded on the estimated profit. The CIT(A) reduced the estimated profit, and the ITAT further reduced it to 5%. The Ld.CIT(A) deleted the penalty, emphasizing that the addition was based on estimation and that no willful act of concealment or furnishing inaccurate particulars was established by the AO. The ITAT upheld the deletion of the penalty, considering that the disallowance was made on an estimated basis due to non-production of suppliers before the AO, and the purchases were supported by vouchers and payments through banking channels.Issue 2: Application of Explanation-1 to section 271(1)(c) of the Act:The AO relied on Explanation 1 to section 271(1)(c) to justify the penalty, arguing that the case fell within its ambit as the assessee failed to offer a satisfactory explanation for the alleged bogus purchases. However, the Ld.CIT(A) and ITAT found that the addition was based on assumptions and estimations rather than deliberate concealment or furnishing of inaccurate particulars. The ITAT emphasized that estimation does not equate to inaccurate particulars, especially when the purchases were recorded in the books of accounts and profits declared.Issue 3: Applicability of CBDT Circular no.17/2019 on tax effect:The revenue attempted to argue that the penalty appeal fell within the exception provided in the CBDT circular regarding appeals arising from information received from external sources. However, the ITAT dismissed this argument, stating that once the penalty was based on outside agency information, it lacked a valid basis. The ITAT also noted that the tax effect in this case was below the limit set by the CBDT for filing appeals before the ITAT.Issue 4: Justification for deleting penalty by the Ld.CIT(A):The Ld.CIT(A) justified the deletion of the penalty by emphasizing that the addition was based on estimation and that no willful act of concealment or furnishing inaccurate particulars was established. The Ld.CIT(A) and ITAT both highlighted that the estimation of income does not automatically warrant the imposition of a penalty under section 271(1)(c) of the Act. They referred to various case laws and precedents supporting the position that penalties cannot be levied for ad hoc or estimated additions without evidence of deliberate concealment.In conclusion, the ITAT dismissed the revenue's appeals, upholding the deletion of the penalty by the Ld.CIT(A) based on the lack of established concealment or furnishing of inaccurate particulars by the assessee. The judgment emphasized the importance of distinguishing between estimations and deliberate misrepresentation when imposing penalties under section 271(1)(c) of the Income Tax Act, 1961.