2020 (11) TMI 94 - AT - Income Tax

Tribunal overturns unjust penalty under Income Tax Act, highlights need for evidence-based decisions.

Hiten Yogesh Thakkar Versus Income Tax Officer 26 (1) (5), Mumbai

The Tribunal ruled in favor of the appellant, holding that the penalty imposed under section 271(1)(c) of the Income Tax Act was unjustified. The ... Penalty levied u/s 271(1)(c) - addition of alleged non-genuine purchases - receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained accommodation entries through bogus purchase bills from hawala parties - HELD THAT:- Though the assessee had filed the details containing his full explanation, the AO made an addition of ₹ 21,17,152/-, without making any inquiry/verification. In such a situation like the present one wherein the Ld. CIT(A) has estimated the profit @ 17.67% of the total alleged bogus purchases which comes to ₹ 3,74,100/-, We are of the considered view that penalty u/s 271(1)(c) is not leviable. The law that penalty would not be exigible merely because an addition is made on estimate basis was reiterated in CIT v. Raj Bans Singh [2004 (8) TMI 73 - ALLAHABAD HIGH COURT] and CIT v. Ajaib Singh & Co. [2001 (8) TMI 79 - PUNJAB AND HARYANA HIGH COURT] In view of the above factual matrix and position of law we delete the penalty - Decided in favour of assessee. Issues:- Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.- Disallowance of alleged non-genuine purchases.- Justification of penalty based on inaccurate particulars of income.Analysis:1. The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2009-10. The appellant contested that the penalty was unjust as the initiation notice for penalty was legally flawed. The grounds of appeal highlighted the alleged errors made by the Assessing Officer in imposing the penalty without proper appreciation of the legal aspects involved.2. The core issue revolved around the disallowance of alleged non-genuine purchases made by the assessee. The Commissioner of Income Tax (Appeals) restricted the disallowance to 17.67% of the total amount, considering that the purchases were not entirely bogus but involved a profit element that needed to be added to the income. The appellant argued that there was no concealment of income or inaccurate filing, as all relevant details were provided, and the purchases were supported by the order of the Maharashtra Value Added Tax (MAVT) Department.3. The Assessing Officer levied a penalty of Rs. 1,20,000 under section 271(1)(c) based on the concealed income of Rs. 3,74,100, asserting that the appellant had furnished inaccurate particulars of income. The Commissioner upheld the penalty, emphasizing that even if a profit estimation was made, it did not negate the fact that the appellant had obtained bogus bills and falsified accounts to inflate business expenses and reduce taxable income.4. During the proceedings, the appellant relied on a Tribunal order from a similar case to support their argument, while the Department Representative sought confirmation of the penalty. The Tribunal carefully examined the details submitted by the assessee during the assessment, where the appellant had provided comprehensive explanations and documentation regarding the purchases in question.5. The Tribunal, after considering the facts and legal precedents, concluded that the penalty under section 271(1)(c) was not justified in this case. Citing previous judgments, the Tribunal ruled that a penalty cannot be levied solely on an estimate basis. Therefore, the penalty of Rs. 1,20,000 imposed by the Assessing Officer was deleted, and the appeal filed by the assessee was allowed.This detailed analysis encapsulates the core issues, arguments presented, decisions made, and legal principles applied in the judgment delivered by the Appellate Tribunal ITAT Mumbai.