2025 (4) TMI 1623 - AT - Income Tax

Penalty under section 271(1)(c) deleted as unsustainable claims don't constitute furnishing inaccurate particulars

ITAT Jaipur allowed the assessee's appeals against penalty levy under section 271(1)(c) for assessment years 2008-09 and 2009-10. The penalty was imposed ... Levy of penalty u/s 271(1)(c) - Disallowance of 25% of the purchase alleged of bogus and made addition after rejecting books of account u/s 145(3) - CIT(A) confirmed penalty levy. As decided by AM - It is clear from the order of the CIT(A) that he has allowed the penalty appeal of the assessee for the assessment year 2007- 08 on the same set of facts whereas for assessment years 2008-09 and 2009-10 though the facts being same should have been allowed. The doctrine of binding precedent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of his daily affairs. And, therefore, the need for a clear and consistent enunciation of legal principles should be followed we find out that the ld. CIT(A) has not given any reasons as to why he has not followed his own order in the case of same assessee in spite of the fact that the issues and analogy in both the appeals are the same. Hence, we do not concur with the findings of the CIT(A) as both the issues are fully covered by the decision of ITAT Jaipur Bench (supra) as narrated in the order of the CIT(A) and the same has been followed by him while determining the appeal of the assessee for assessment year 2007-08. The records reveal that the purchase made by the assessee alleged to have been considered as bogus and thereby the profit was estimated and confirmed in the hands of the assessee. That claim itself is not considered fully not correct and thereby the profit was added. Thus, we get support of the decision of the apex court in the case of Reliance Petroproducts Private Limited. [2010 (3) TMI 80 - SUPREME COURT] wherein already seen the meaning of the word 'particulars' in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. Thus, appeals of the assessee relating to levy of penalty u/s 271(1)(c) of the Act are allowed. As decided by JM - The undisputed fact was that the additions were made on account of bogus purchases and ultimately, the Tribunal restricted the quantum addition at 12.5% of the bogus purchases. Therefore, it was held that there was no merit in the contention of the ld. Counsel that the profit had been estimated and the penalty had been levied on estimated profit. Therein, facts on record showed that there were bogus purchases and only the profit element had been added which meant that the assessee had concealed the income to this extent in the garb of purchases which turned out to be bogus. Therefore, considering the facts of the case in totality, it was held that there was no hesitation in confirming the penalty so levied u/s 271(1)(c) of the Act. The appeal filed by the assessee was accordingly dismissed. Returning to present appeals, once, the abovesaid penalty order as regards previous assessment year 2007-2008, based on similar facts was set aside, while dealing with the appeals challenging 2 penalty orders pertaining to the subsequent assessment years i.e. 2008-09 and 2009-10, Learned CIT(A) should have maintained consistency and set aside the penalty, especially when it was also not a case of 100% bogus purchases. The impugned orders passed by Learned CIT(A) deserve to be set aside. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these appeals are:Whether penalty under section 271(1)(c) of the Income Tax Act, 1961 can be imposed on the assessee for furnishing inaccurate particulars of income when the additions to income are made on an estimated basis due to rejection of books of account.Whether the penalty imposed for assessment years 2008-09 and 2009-10 should be upheld or deleted, particularly in light of the penalty being deleted for the preceding assessment year 2007-08 under similar facts.Whether the principle of judicial consistency and binding precedent requires the penalty for the later years to be deleted following the decision in the earlier year.The applicability and interpretation of judicial precedents concerning penalty levy on estimated income additions and the requirement of proving concealment or furnishing inaccurate particulars.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Imposition of penalty under section 271(1)(c) on additions made on estimated basis due to rejection of books of accountRelevant legal framework and precedents:Section 271(1)(c) of the Income Tax Act imposes penalty for furnishing inaccurate particulars of income or concealment of income. The legal principle requires a positive act of concealment or furnishing inaccurate particulars. The Hon'ble Punjab & Haryana High Court in Harigopal Singh v. CIT [2002] 258 ITR 85 held that penalty cannot be levied when income has been estimated and there is no positive act of concealment by the assessee. The Tribunal in several decisions including Shri Alok Haldia v. ACIT (2019), Ashok Kumar Gupta v. ITO (2018), and Deepak Dalela v. ITO (2016) has held that penalty is not leviable on additions made on estimated basis if the assessee has furnished all evidences and there is no mala fide or deliberate concealment.Court's interpretation and reasoning:The Tribunal noted that in the instant cases for AY 2008-09 and 2009-10, the Assessing Officer had made additions on account of alleged bogus purchases and estimated gross profit rate to determine income. The books of account were rejected under section 145(3) due to non-compliance and concealment of true particulars. However, the additions were made on an estimated basis and were subsequently reduced by the CIT(A) and the ITAT in preceding years.The Tribunal emphasized that penalty proceedings are separate from quantum proceedings and that even if additions are confirmed, penalty cannot be imposed if the assessee has furnished all relevant evidences and there is no proof of deliberate concealment or furnishing inaccurate particulars. The Tribunal relied on the decision of the Hon'ble Supreme Court in Commissioner of Income Tax, Ahmedabad v. Reliance Petroproducts Pvt. Ltd. which clarified that penalty under section 271(1)(c) requires furnishing of inaccurate particulars and mere unsustainable claims do not amount to furnishing inaccurate particulars.Key evidence and findings:The assessee maintained books of account, audited by a Chartered Accountant, and submitted various documents including purchase invoices, bank statements, export invoices, and confirmations to substantiate purchases. The additions were made after rejection of books and estimation of profits. The CIT(A) for AY 2007-08 had deleted penalty on similar facts after detailed consideration of judicial precedents. The assessee's submissions and documentary evidence were not fully appreciated by the AO and CIT(A) for AY 2008-09 and 2009-10.Application of law to facts:The Tribunal applied the settled legal principles that penalty cannot be levied on estimated income additions unless there is clear evidence of concealment or furnishing inaccurate particulars. The Tribunal found that the additions were estimated and the assessee had furnished all possible evidence. The CIT(A) had not given reasons for not following his own order for AY 2007-08 where penalty was deleted on similar facts, violating the doctrine of judicial consistency.Treatment of competing arguments:The Revenue argued that bogus purchases were established and penalty was justified. The CIT(A) upheld penalty for AY 2008-09 and 2009-10 citing concealment and false entries. The assessee contended that additions were on estimation basis and penalty cannot be levied on such estimated income, relying on judicial precedents. The Tribunal found the assessee's arguments persuasive and noted the lack of reasons from CIT(A) for deviation from prior order.Conclusions:The Tribunal concluded that penalty under section 271(1)(c) cannot be sustained on estimated income additions in absence of proof of concealment or inaccurate particulars. The penalty imposed for AY 2008-09 and 2009-10 was held to be illegal and was deleted, following the principle of judicial consistency and relevant precedents.Issue 2: Application of judicial consistency and binding precedent in penalty proceedingsRelevant legal framework and precedents:The doctrine of binding precedent requires courts and tribunals to follow legal principles established in earlier decisions on similar facts to promote certainty and consistency. The Tribunal referred to the CIT(A)'s order for AY 2007-08 where penalty was deleted on identical facts and similar legal issues.Court's interpretation and reasoning:The Tribunal observed that the CIT(A) had not provided any reasons for not following his own earlier order for AY 2007-08 while confirming penalty for AY 2008-09 and 2009-10. The Tribunal emphasized that such inconsistency undermines the principles of fair adjudication and legal certainty. The Tribunal invoked the principle that once a legal position is settled on identical facts, it should be followed unless distinguishable facts exist.Key evidence and findings:The CIT(A) had allowed penalty appeal for AY 2007-08 after applying judicial precedents and considering evidence of estimation and documentary proof. The facts and issues for AY 2008-09 and 2009-10 were materially identical, involving disallowance of bogus purchases on estimated gross profit basis and rejection of books of account.Application of law to facts:The Tribunal applied the doctrine of judicial consistency and found no material distinction between the years to justify different treatment. The CIT(A)'s failure to follow his own order was held to be contrary to the principles of fair adjudication.Treatment of competing arguments:The Revenue did not dispute the factual position of penalty deletion for AY 2007-08 but urged confirmation of penalties for subsequent years based on findings of concealment. The Tribunal rejected this, emphasizing the need for consistent application of law.Conclusions:The Tribunal held that the penalty orders for AY 2008-09 and 2009-10 should be set aside in light of the earlier penalty deletion for AY 2007-08 on similar facts, thus upholding the doctrine of judicial consistency.3. SIGNIFICANT HOLDINGSThe Tribunal held:'We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.''In making computation of total income where the income returned has been rejected by rejecting the trading results, finding some discrepancy in the books of account and substituting the same by an estimated figure, in the strict sense, can neither be said to be addition of any amount in the returned income nor disallowance of any amount as deductions claimed. The word 'amount' of which additions made or deductions disallowed also denotes reference to specific item of amount added or disallowed as deduction in contrast to substitution of altogether a new estimated sum in place of the income returned. It is a case neither of addition or disallowance but a case of substitution.''The doctrine of binding precedent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of his daily affairs.'Core principles established include:Penalty under section 271(1)(c) cannot be imposed on additions made on estimated basis if the assessee has furnished all evidences and there is no mala fide concealment or inaccurate particulars.Estimated income additions arising from rejection of books of account and substitution by an estimated figure do not amount to furnishing inaccurate particulars warranting penalty.Judicial consistency requires following earlier decisions on identical facts unless distinguishable reasons exist.Mere unsustainable claims in the return do not amount to furnishing inaccurate particulars.Final determinations on each issue:The penalty imposed under section 271(1)(c) for assessment years 2008-09 and 2009-10 was held to be unsustainable and was deleted.The CIT(A)'s confirmation of penalty for these years was set aside for failure to follow his own earlier order for AY 2007-08 and for ignoring settled legal principles.The appeals filed by the assessee against penalty orders for AY 2008-09 and 2009-10 were allowed accordingly.