2022 (5) TMI 445 - AT - Income Tax

Penalties deleted for alleged bogus purchases; estimation not grounds for penalty; external agency info not sustainable

ACIT-17 (1), Mumbai Versus Bajranglal Bhikaram Mittal

The penalties under section 271(1)(c) were deleted in this case. The Assessing Officer estimated income based on alleged bogus purchases, but the CIT(A) ... Penalty u/s 271(1)(c) - estimation of income on bogus purchases - HELD THAT:- When the addition is on estimated basis, penalty u/s 271(1)(c) of the Act cannot be levied on such adhoc estimated income. The disallowance of purchases on ad-hoc/estimated basis does not tantamount to furnishing inaccurate particulars of income under the provisions of Section 271(1) (c) - A.O. has not doubted the sales and made disallowance of bogus purchases and we rely on the ratio of the Honorable Jurisdictional High Court in the case of M/s Nikunj Eximp Enterprises [2014 (7) TMI 559 - BOMBAY HIGH COURT]. AO made an addition based on the information received from Sales tax department Maharashtra. We are of the opinion that once the revenue accepts that penalty is levied on the basis of information from the outside agency/ department, the penalty is not sustained. The Ld. DR could not controvert the findings of the CIT(A) with any new cogent evidences or information to take different view. Accordingly, we are not inclined to interfere with the order of the Ld.CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue . Issues:1. Whether the penalty under section 271(1)(c) should be deleted for the addition of bogus purchases.2. Whether the penalty under section 271(1)(c) should be deleted despite information received from external departments.3. Whether the penalty under section 271(1)(c) can be imposed on estimated income.4. Whether the penalty order should be upheld based on the facts and legal provisions.Issue 1:The appeals were filed by the revenue against the orders of the National Faceless Appeal Centre under section 271(1)(c) and 250 of the Act. The Assessing Officer (A.O) found that the assessee had made purchases from seven parties, but the genuineness of these transactions could not be established. The A.O estimated income at 12.5% of the bogus purchases and assessed the total income accordingly. Subsequently, penalty proceedings under section 271(1)(c) were initiated. The CIT(A) and ITAT restricted the addition to 4% of the purchases, leading to the deletion of the penalty by the CIT(A) based on legal decisions and provisions.Issue 2:The A.O received information that the assessee obtained bogus purchase bills, leading to penalty proceedings under section 271(1)(c). However, the CIT(A) observed that no penalty can be levied on estimated income and directed the A.O to delete the penalty. The Tribunal upheld the CIT(A)'s decision, stating that once the penalty is based on information from an outside agency, it is not sustainable. The revenue's appeal was dismissed as the penalty was not supported by new evidence.Issue 3:The Tribunal held that when additions are made on an estimated basis, penalties under section 271(1)(c) cannot be levied on such ad-hoc income. The disallowance of purchases on an estimated basis does not constitute furnishing inaccurate particulars of income. The Tribunal relied on legal precedents and the fact that the A.O did not doubt the sales but made disallowances based on information from the Sales Tax Department. The Tribunal upheld the CIT(A)'s decision to delete the penalty.Issue 4:The Tribunal found that penalties cannot be imposed on estimated income and that the penalty was not sustainable based on information from external departments. The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the penalty. The decision in one appeal applied mutatis mutandis to other appeals with similar circumstances. Ultimately, all appeals filed by the revenue were dismissed based on the legal analysis and factual findings presented in the judgment.