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2010 (5) TMI 678 - AT - Income TaxLevy of Penalty u/s 271(1)(c) - bogus purchases - AO noticed that the assessee was making bogus purchases from various concerns belong to Mr. F.H. Rizvi and treated as bogus purchases for AY 1996-97 and levied penalty u/s 271(1)(c). CIT(A) confirmed the addition to the extent of 25 per cent of total purchases. HELD THAT - We find that the assessee had tried to substantiate its claim by filing affidavit and other material in quantum matter. In quantum matter the CIT(A) asked the assessee to produce Mr. Rizwi for examination but the assessee failed to do so. The AO has also mentioned in the remand report which was reproduced by the CIT(A) in quantum order that summons u/s 131 issued to Mr. Rizwi but the same was not complied by Mr. Rizwi. It was submitted by the AO that the assessee has not availed opportunity as he did not impress upon Shri Rizwi to attend before the AO. In respect of quantum matter if the assessee failed to submit such material information to substantiate their claim addition could be sustained but this aspect of human probability tendency of non-co-operation by the parties after business transaction is over is required to be considered while deciding bona fide aspect of the assessee in penalty matter u/s 271(1)( c ). The case of the assessee falls under the essence of Part B of the Explanation . The assessee offered reasonable explanation. The AO has not given finding based on some contradictory evidence to disapprove that explanation offered by the assessee which the assessee is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Penalty u/s 271(1)( c ) cannot be levied unless the case is strictly covered by the provisions of section 271(1)( c ). There is no finding that that the assessee has concealed particulars of income or furnished inaccurate particulars of income discussed above. Under the circumstances it cannot be held that the AO has found that the assessee has concealed particulars of income or furnished inaccurate particulars of income. We find that this is not a fit case for levy of penalty u/s 271(1)( c ). We hereby cancel the penalties made by the AO u/s 271(1)( c ) in all the three years under consideration.
Issues Involved:
1. Levy of penalty under section 271(1)(c) for the assessment years 1996-97 to 1998-99. 2. Determination of whether the assessee concealed particulars of income or furnished inaccurate particulars of income. Issue-Wise Detailed Analysis: 1. Levy of Penalty Under Section 271(1)(c) - The common ground in these appeals is the levy of penalty under section 271(1)(c) amounting to Rs. 11,23,080 for 1996-97, Rs. 21,47,750 for 1997-98, and Rs. 3,31,530 for 1998-99. - The assessee was found to have made bogus purchases from various concerns belonging to Mr. F.H. Rizvi, totaling Rs. 15,99,295 for the assessment year 1996-97. - The Assessing Officer treated these purchases as bogus and levied penalties, which were confirmed by the CIT(A). The CIT(A) directed the AO to recalculate the minimum penalty based on the sustained addition. 2. Determination of Concealment or Inaccuracy of Income - The AR argued that there was no conclusive material proving that the assessee concealed particulars of income or furnished inaccurate particulars. It was a case of estimation of GP, and penalties under section 271(1)(c) should not be levied. - The DR countered that the assessee made purchases through hawala entries and failed to discharge its onus to support its claim. The DR cited judgments to support the levy of penalty even on an estimate basis. - The tribunal examined whether penalty under section 271(1)(c), read with Explanation 1, was applicable. The expressions "has concealed the particulars of his income" and "has furnished inaccurate particulars of income" were analyzed based on definitions from various judgments. - The tribunal noted that the purchases were recorded regularly in the books of account, and the appellate authorities did not doubt the actual purchases but questioned the source. - The tribunal referred to the Apex Court's judgment in the case of Reliance Petroproducts (P.) Ltd., emphasizing that the penalty provisions are penal in nature and require a guilty mind. Explanation 1 to Section 271(1)(c) - Explanation 1 provides that if a person fails to offer an explanation or offers an explanation which is found to be false, or offers an explanation which he is not able to substantiate, the amount added or disallowed shall be deemed to represent the income in respect of which particulars have been concealed. - The tribunal highlighted that the initial burden of rebuttal is on the assessee, and if the assessee fails to discharge that burden, the presumption of concealment is available to be drawn. - The tribunal referred to the case of Cement Marketing Co. of India Ltd., where it was held that a return cannot be said to be "false" unless there is an element of deliberateness. Application to the Case at Hand - The tribunal found that the assessee had tried to substantiate its claim by filing affidavits and other materials. The revenue authorities did not exercise their powers under section 131 to summon the party. - The tribunal considered the human probability of non-cooperation by parties after business transactions are over and found that the assessee's case fell under Part B of the Explanation, offering a reasonable explanation. - The tribunal concluded that there was no finding that the assessee had concealed particulars of income or furnished inaccurate particulars of income. Conclusion - The tribunal canceled the penalties levied by the Assessing Officer under section 271(1)(c) for all three years under consideration, allowing the appeals of the assessee.
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