2019 (5) TMI 771 - AT - Income Tax

Tribunal nullifies penalty for income concealment, disagrees with enhancement, upholds appeal

The Tribunal upheld the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 on the assessee for deliberate concealment of income. However, ... Penalty u/s 271(1)(c) - disallowance at the rate of 12.5% being gross profit of the bogus purchases - CIT(A) made enhancement of the bogus purchases and directed the AO to add the balance amount of bogus purchases and also imposed penalty - ITAT [2017 (10) TMI 1451 - ITAT MUMBAI] deleted the enhancement made by CIT(A) but sustain the addition @ 12.5% made by AO - HELD THAT:- Tribunal has deleted the addition whatever was enhanced by CIT(A). Hence, the penalty levied by CIT(A) on enhancement vide order dated 27.07.2017 will not survive as the quantum addition has been deleted by the Tribunal. The penalty imposed by CIT(A) was ₹ 28,68,970/-. When these facts were confronted to the learned Sr. Departmental Representative, he could not controvert the above factual findings. After hearing the rival contentions and going through the facts of the case, we are of the view that once the quantum is deleted by the Tribunal, the penalty levied by CIT(A) on enhanced income will not survive. - Decided in favour of assessee. Issues:1. Penalty under section 271(1)(c) of the Income Tax Act, 1961.2. Enhancement of income by CIT(A) and subsequent penalty imposition.3. Consideration of evidence and reconciliation of purchases by the assessee.4. Deletion of penalty by the Tribunal due to deletion of quantum addition.Issue 1: Penalty under section 271(1)(c) of the Income Tax Act, 1961:The appeal filed by the assessee challenged the penalty order passed by the Commissioner of Income Tax (Appeals) under section 271(1)(c) of the Act amounting to Rs. 28,68,975 on the alleged evaded amount of Rs. 95,63,253. The CIT(A) held that the penalty was rightly initiated due to deliberate concealment or furnishing of inaccurate particulars of income by the assessee. The appellant argued against the penalty imposition, citing various legal judgments and questioning the clarity in the notice served for the penalty. The Tribunal analyzed the penalty proceedings and upheld the CIT(A)'s decision, leading to the imposition of the penalty.Issue 2: Enhancement of income by CIT(A) and subsequent penalty imposition:The CIT(A) enhanced the income by disallowing the entire amount of alleged bogus purchases made by the assessee, totaling Rs. 95,63,253. The Tribunal, however, disagreed with the CIT(A) and directed the Assessing Officer to sustain the addition at 12.5% of the value of purchases. This decision was based on the reconciliation of purchases and sales by the assessee, along with certification by the tax auditor. The Tribunal's order effectively nullified the enhancement made by the CIT(A), impacting the penalty imposed on the enhanced income.Issue 3: Consideration of evidence and reconciliation of purchases by the assessee:During the assessment proceedings, the assessee provided various documents to support the genuineness of purchases, including purchase bills, ledger accounts, and payment details. The CIT(A) raised concerns over missing quantity details and non-production of the stock register, leading to the disallowance of the entire amount of alleged bogus purchases. However, the Tribunal found merit in the arguments presented by the assessee's representative, emphasizing the reconciliation of quantities and certification by the tax auditor. This reconciliation played a crucial role in the Tribunal's decision to set aside the CIT(A)'s order and reduce the addition to 12.5% of the value of purchases.Issue 4: Deletion of penalty by the Tribunal due to deletion of quantum addition:Following the Tribunal's decision to nullify the enhancement made by the CIT(A) and sustain the addition at 12.5%, the penalty imposed by the CIT(A) on the enhanced income was deemed unnecessary. The Tribunal, after considering the factual findings and the deletion of the quantum addition, decided to delete the penalty and allowed the appeal of the assessee. This action was based on the principle that once the quantum addition is deleted, the penalty on the enhanced income does not stand.In conclusion, the Tribunal's judgment addressed the penalty imposition under section 271(1)(c), the enhancement of income by the CIT(A), the reconciliation of purchases by the assessee, and the subsequent deletion of the penalty due to the nullification of the quantum addition. The detailed analysis of each issue provided clarity on the legal proceedings and the factors influencing the final decision.