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2020 (1) TMI 400 - ITAT SURATPenalty u/s 271(1)(c) - AO made disallowed @25% of bogus purchases - HELD THAT:- Sales were actually made. As purchases were not made from the bills providers as it is and evident that the purchases were made from the third party. Since the goods were exported the same were routed through customs authorities hence, the corresponding sales are not in dispute. The bills were from accommodation entries provider were recorded in the books of accounts and quantities were entered into books The purchase amount was not verifiable and as such,5% profit rate on bogus purchases was applied by the Tribunal. From the order of the AO, we found that the AO has estimated the income on the bills of purchases of diamonds. The similar issue had come before the Hon'ble M.P. High Court in the case of CIT vs. Shivnarayan Jamnalal [1996 (5) TMI 9 - MADHYA PRADESH HIGH COURT] wherein the Hon'ble High Court has held that the books of accounts maintained by the assessee were not properly maintained and if assessee has not concealed any material and not tried to defraud the authorities, the penalty cannot be levied, because the income was assessed on estimate basis. Just because Appellant’s explanation was not found acceptable by the AO, it does not follow that that the Appellant was unable to substantiate his explanation by providing various evidences and judicial opinions. Explanation 1 to section 271(1)(c) of the Act does not therefore cover the case of the Assessee. Based on the above facts of the case; it can be held that the Assessee had made all the necessary disclosures on a bonafide belief, which is not agreeable to the AO, it will not automatically lead to a case for penalty under section 271(1)(c). We are therefore of the considered view that the penalty is not sustainable in law in the ratio laid down by the Hon’ble Supreme Court in case of CIT v Reliance Petro-products Pvt. Ltd. [2010 (3) TMI 80 - SUPREME COURT] wherein it was held that merely because the assessee has claimed the expenditure, which claim was not accepted or was not acceptable by the revenue, penalty under section 271(1) (c) of the Act cannot be attracted. - Decided in favour of assessee.
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