2022 (6) TMI 829 - AT - Income Tax

Tribunal overturns penalty for alleged bogus purchases under Income Tax Act, emphasizing penalties cannot be based solely on estimations.

The Tribunal set aside the penalty under section 271(1)(c) of the Income Tax Act, 1961 for AY 2009-10, as it was based on estimations regarding alleged ... Levy of penalty u/s 271(1)(c) - defective notice u/s 274 - as argued irrelevant clause have not been struck off by the AO before issuing the notice. HELD THAT:- The first notice issued under section 274 r.w.s. 271(1)(c) is in Performa, without any application of mind by the AO. The irrelevant limb of section 271(1(c) of the Act has not been struck off. The Hon’ble jurisdictional High Court in the case of Mohd. Farhan A. Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT] has dealt with the issue where the notice was issued without striking off the irrelevant matter. The Hon’ble High Court held that non-striking off irrelevant matter would vitiate the penalty proceedings. In the second notice dated 15.03.2019, the AO has mentioned both the charges of section 271(1)(c) of the Act. This shows ambiguity in the mind of AO with regard to charge under section 271(1)(c) of the Act, that is to be invoked. The Hon’ble Apex Court in the case of T. Ashok Pai [2007 (5) TMI 199 - SUPREME COURT] has held the concealment of income and furnishing inaccurate particulars of income carry different connotations. Thus, the AO is duty bound to clearly convey to the assessee the limb for which penalty is to be levied. Where the position is unclear, penalty is unsustainable. Thus, the penalty levied under section 271(1)(c) of the Act is unsustainable on account of defect in statutory notice issued under section 274 of the Act, as well for the reason that penalty is levied on addition made on mere estimations.- Decided in favour of assessee. Issues:Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year (AY) 2009-10 based on alleged bogus purchases.Analysis:1. Background:The appeal was filed against the order of Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre, Delhi confirming the penalty under section 271(1)(c) of the Income Tax Act, 1961. The appellant contended that the penalty was unjustified as it was based on estimations regarding alleged bogus purchases.2. Assessee's Argument:The appellant's representative argued that the penalty should have been deleted as it was levied on additions made merely on estimations. It was highlighted that the notice issued under section 274 r.w.s. 271(1)(c) of the Act was ambiguous and did not comply with legal requirements, as irrelevant clauses were not struck off.3. Department's Defense:The Departmental Representative defended the penalty, stating that it was rightly levied and upheld by the authorities. It was emphasized that the Tribunal had agreed that the appellant engaged in obtaining bogus purchase bills, although the quantum of addition was reduced.4. Tribunal's Findings:The Tribunal observed that the penalty was unsustainable as it was based on estimations regarding alleged bogus purchases. Citing legal precedents, it noted that penalties cannot be levied on additions made on estimates alone. The Tribunal also highlighted the defects in the statutory notice issued under section 274 of the Act, which failed to specify the grounds for penalty clearly.5. Legal Precedents:Referring to case laws such as CIT Vs. Krishi Tyre Re-trading & Rubber Industries, CIT Vs. Subhash Trading Company, and CIT Vs. Sangrur Vanaspati Mills Ltd., the Tribunal emphasized that penalties cannot be imposed solely on estimations. It further quoted the Hon'ble Bombay High Court's decision in the case of Mohd. Farhan A. Shaikh, which emphasized the importance of a valid notice for penalty proceedings.6. Conclusion:The Tribunal concluded that the penalty under section 271(1)(c) of the Act was unsustainable due to the defects in the statutory notice and the fact that it was based on estimations. Therefore, the impugned order was set aside, and the appeal of the assessee was allowed. The judgment was pronounced on the 7th day of March, 2022.This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by both parties, the Tribunal's findings, and the legal principles applied in reaching the decision to set aside the penalty.