2021 (4) TMI 373 - AT - Income Tax

Penalty overturned for alleged bogus purchases due to lack of evidence

Anil Bajaria Versus ACIT-26 (1) Kautilya Bhavan, Mumbai

The Tribunal overturned the penalty imposed under Sec. 271(1)(c) for A.Y. 2009-10, as the unproved alleged bogus purchases did not warrant penalty ... Penalty u/s 271(1)(c) - Bogus purchases - addition on account of alleged bogus purchases at the rate 12.5% - HELD THAT:- Where a claim of expenditure is neither found inaccurate nor could be viewed as concealment of income on the part of the assessee, then merely because the said claim was not accepted or acceptable to the revenue would not by itself attract penalty under Sec.271(1)(c). Now, in the case before us, as the revenue had failed to disprove to the hilt on the basis of clinching documentary evidence the authenticity of the claim of the assessee of having made purchases from the aforementioned parties, therefore, merely on the basis of the unproved claim of purchases no penalty under Sec. 271(1)(c) could have been validly imposed on the assessee. In fact, the restriction of the disallowance of entire purchases made by the CIT(A) to 12.5% of the aggregate value of such purchases speaks for itself that the disallowance sustained in the hands of the assessee is merely backed by a process of estimation and not based on any concrete evidence. As in the case before us no clinching material had been brought on record by the revenue which could disprove the authenticity of the purchases claimed by the assessee to have been made from the aforementioned parties thus, no penalty under Sec.271(1)(c) could have validly been imposed upon him. We thus not being able to persuade ourselves to subscribe to the observations of the lower authorities therein vacate the penalty imposed by the A.O under Sec. 271(1)(c). Accordingly, the order of the CIT(A) upholding the penalty imposed by the A.O under Sec. 271(1)(c) is vacated. - Decided in favour of assessee. Issues:- Penalty under Sec. 271(1)(c) for A.Y. 2009-10- Addition of alleged bogus purchases- Nexus between payments and alleged bogus purchases- Validity of penalty imposition based on unproved claims- Consistency with legal precedents- Penalty imposition for A.Y. 2010-11 and 2011-12Penalty under Sec. 271(1)(c) for A.Y. 2009-10:The assessee's appeal challenged the penalty imposed under Sec. 271(1)(c) for A.Y. 2009-10. The Assessing Officer (A.O) initiated penalty proceedings based on alleged inaccurate particulars of income and concealment of income. The A.O added the entire value of alleged bogus purchases as the assessee failed to substantiate their genuineness. The CIT(A) reduced the addition to 12.5% of the total value. The Tribunal noted that while the purchases were unproved, the assessee provided documentary evidence that was not disproved. Citing legal precedents, the Tribunal concluded that the unproved purchases did not warrant penalty imposition under Sec. 271(1)(c). Consequently, the penalty was vacated, and the appeal was allowed.Addition of alleged bogus purchases:The A.O added the entire value of alleged bogus purchases made by the assessee from specific parties. However, the CIT(A) reduced the addition to 12.5% of the total value, noting the lack of concrete evidence supporting the A.O.'s claim of bogus purchases. The Tribunal emphasized that the burden of proof lay with the revenue, and in this case, the revenue failed to disprove the authenticity of the purchases claimed by the assessee. The Tribunal found the addition to be based on estimation rather than concrete evidence, leading to the conclusion that no penalty under Sec. 271(1)(c) could be validly imposed.Nexus between payments and alleged bogus purchases:The A.O alleged that the payments made by the assessee to the supplier parties were linked to the routing of funds back to the assessee. However, the CIT(A) found no established nexus between the payments and the alleged bogus purchases. The Tribunal concurred with the CIT(A)'s observation, highlighting the lack of concrete evidence supporting the A.O.'s claim. This lack of nexus further weakened the case for penalty imposition under Sec. 271(1)(c).Validity of penalty imposition based on unproved claims:The Tribunal scrutinized the validity of penalty imposition based on unproved claims by the assessee. While the purchases remained unproved, the assessee provided documentary evidence that was neither dislodged nor disproved by the authorities. Citing legal precedents, including a judgment of the Hon'ble High Court of Bombay, the Tribunal emphasized that penalty cannot be imposed solely on unproved claims if the evidence provided by the assessee remains unchallenged. This analysis led to the conclusion that the penalty imposed by the A.O was not valid.Consistency with legal precedents:The Tribunal referred to legal precedents, including judgments of the Hon'ble High Court of Bombay and the Hon'ble Supreme Court, to support its decision. These precedents emphasized that penalty under Sec. 271(1)(c) cannot be imposed solely based on unproved claims if the evidence provided by the assessee remains unchallenged. The Tribunal's decision to vacate the penalty was in line with these legal principles.Penalty imposition for A.Y. 2010-11 and 2011-12:The Tribunal extended its decision on penalty imposition for A.Y. 2009-10 to A.Y. 2010-11 and 2011-12. As the issues and facts remained the same across these assessment years, the Tribunal set aside the penalty imposed by the A.O for both A.Y. 2010-11 and 2011-12. The appeals of the assessee for all three assessment years were allowed, and the penalties were quashed.---