2018 (10) TMI 2062 - AT - Income Tax

Penalty under s.271(1)(c) deleted where addition was finally estimated at Rs.20 lakh and not reversed

ITAT MUMBAI affirmed deletion of penalty under s.271(1)(c), noting the quantum addition was finally estimated at Rs.20 lakh and that no higher authority ... Penalty u/s 271(1)(c) - Quantum addition on estimates - HELD THAT:- Penalty has been deleted by Ld. first appellate authority upon noticing that the quantum additions has finally been estimated at Rs.20 Lacs by the Tribunal . Nothing on record suggest that the aforesaid order of the Tribunal has subsequently been reversed by any higher authority. This being the case, the impugned penalty does not survive since the final addition is on estimated basis only. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) is sustainable where the assessing officer made additions on account of alleged bogus purchases (section 69C) but a subsequent appellate/tribunal order has ultimately estimated the addition at a substantially lower amount. 2. Whether disallowance of purchase expenditure (treatment as bogus purchases) by the assessing officer, without express finding of concealment of income or furnishing of inaccurate particulars, per se attracts penalty under section 271(1)(c). 3. Whether the absence of the assessee at the hearing (proceedings under appellate rules) affects the Tribunal's power to decide the appeal on the material on record. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainabiity of penalty where quantum of addition is subsequently reduced/estimated by Tribunal Legal framework: Penalty under section 271(1)(c) may be levied where a person is found to have concealed income or furnished inaccurate particulars. Assessing additions under section 69C (unexplained investments/transactions) form part of the quantum on which penalty may be considered; appellate and Tribunal determinations on quantum affect whether the factual basis for penalty survives. Precedent Treatment: The Court/Tribunal relied on the final estimation made by the Tribunal (prior ITAT order) which materially reduced the addition; no contrary higher authority reversal is on record. The impugned first appellate order considered various judicial authorities (not individually cited in the impugned order) pointing to divergent views, and placed weight on the subsequent Tribunal estimation. Interpretation and reasoning: The Tribunal noted that the first appellate authority deleted the penalty after taking into account that a later Tribunal order had estimated the disallowance at a much lower figure than the AO/CIT(A) had applied. The impugned penalty was founded on an aggregate addition of Rs.2.80 crores; the Tribunal's subsequent estimate was Rs.20 lakhs. Because the ultimate/additional quantum was materially reduced on an estimated basis by a co-ordinate forum and not reversed by any higher authority, the factual foundation for the penalty has been altered. The Court therefore treated the reduced/estimated quantum as determinative for whether penalty could stand. The Tribunal also observed that facts supporting business transactions (books, vouchers, banking payments, unchallenged sales) were not controverted to establish concealment. Ratio vs. Obiter: Ratio - Where the substantive quantum of income addition is ultimately and finally estimated at a substantially lower amount by a competent adjudicatory forum and not reversed, a penalty based on the higher/additional quantum does not survive. Obiter - Observations on the merits of the underlying addition beyond their relevance to penalty (e.g., detailed merits of bogus-purchase determination) are ancillary. Conclusions: The penalty levied on the basis of the larger addition could not be sustained in view of the subsequent Tribunal estimation reducing the addition to a significantly lower amount. The appellate deletion of penalty was held justified and the revenue appeal was dismissed on this ground. Issue 2 - Whether mere disallowance of purchases attracts penalty as concealment or furnishing inaccurate particulars Legal framework: Section 271(1)(c) penalizes concealment or furnishing of inaccurate particulars. Disallowance of expenditure by itself does not automatically establish concealment or inaccurate particulars unless there is an affirmative finding that the taxpayer acted with mens rea or supplied false particulars. Precedent Treatment: The first appellate authority relied on a range of judicial authorities (both for and against) and found the issue to be debatable and controversial; accordingly it applied the principle that mere non-acceptance of a claim by revenue does not per se constitute concealment. The Tribunal, following the appellate reasoning and the Tribunal's own subsequent estimation on quantum, treated those authorities as supporting deletion in the circumstances. Interpretation and reasoning: The Court/Tribunal emphasized factual matrix: taxpayer maintained regular books, purchases supported by bills/vouchers, payments through banking channels, and sales were not doubted by the AO. Given these facts, the appellate authority concluded that the disallowance did not equate to concealment or furnishing inaccurate particulars. The Tribunal endorsed that where the factual record does not demonstrate falsity or deliberate concealment, penalty cannot be sustained merely because revenue did not accept the claimed expenditure. Ratio vs. Obiter: Ratio - Disallowance of claimed purchase expenditure, in the absence of a finding of falsity, concealment or inaccurate particulars, does not automatically attract penalty under section 271(1)(c). Obiter - Remarks characterizing the issue as 'debatable and controversial' and reliance on an unspecified spectrum of precedents are explanatory rather than operative. Conclusions: The deletion of penalty was warranted on the dual bases that (a) the underlying quantum was finally estimated at a much lower amount by the Tribunal, and (b) factual circumstances (books, vouchers, banking payments, unchallenged sales) did not establish concealment or inaccurate particulars. Therefore penalty could not be sustained. Issue 3 - Deciding appeal in absence of assessee under appellate rules Legal framework: Appellate proceedings may continue and be decided on the material on record where a party is absent and no adjournment is granted, in accordance with applicable appellate rules. Precedent Treatment: The Tribunal proceeded under the relevant appellate rule permitting disposal on available material when the assessee did not appear and no valid adjournment was on record. Interpretation and reasoning: The Tribunal heard the Departmental Representative, examined the records and the impugned appellate order, and proceeded to decide the appeal on merits. The absence of the assessee did not preclude adjudication because the matter could be adjudicated based on the record and submissions of the revenue. Ratio vs. Obiter: Ratio - The Tribunal is empowered to proceed and decide an appeal on record and the submissions of the appearing party when the other party is absent without valid adjournment; this procedural posture does not invalidate substantive conclusions drawn from the record. Obiter - None necessary beyond procedural confirmation. Conclusions: The appeal was validly disposed of on the available record and the revenue's appeal was dismissed.