2010 (3) TMI 1095 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of purchases from M/s Pujan Impex and M/s Marvel Impex.
2. Justification for penalty u/s 271(1)(c) of the Income Tax Act, 1961.

Summary:

1. Legitimacy of Purchases:
The assessee, a company engaged in the manufacture of studded jewellery, faced scrutiny from the Income Tax Department following a survey u/s 133A. The department questioned the genuineness of purchases from M/s Pujan Impex and M/s Marvel Impex. The assessee maintained that all purchases were genuine, supported by account payee cheques and stock records. Despite this, the assessee offered additional income for taxation to avoid litigation. The AO and CIT(A) rejected the assessee's explanation, asserting that the purchases were not substantiated and were deemed bogus.

2. Justification for Penalty u/s 271(1)(c):
The AO initiated penalty proceedings u/s 271(1)(c), claiming the assessee concealed income by furnishing inaccurate particulars. The assessee argued that the additional income was offered voluntarily to avoid litigation, and no penalty should be levied since there was no difference between the assessed and returned income in the revised return. The Tribunal noted that the AO did not dispute the manufacturing and sale of jewellery, nor did he provide evidence to counter the assessee's claim of genuine purchases. The Tribunal emphasized that penalty proceedings are independent and require substantial evidence to prove concealment or inaccuracy. The Tribunal cited the Supreme Court's ruling in T. Ashok Pai vs. CIT, highlighting that a bona fide explanation negates the imposition of penalty.

Conclusion:
The Tribunal concluded that the assessee's explanation was bona fide and that the Revenue failed to provide evidence of bogus purchases. Consequently, the penalty u/s 271(1)(c) was deleted, and the appeal was allowed.