2012 (6) TMI 825 - AT - Income Tax

Levy of penalty u/s 271(1) - Held that - The assessee is maintaining books and without pointing out any specific defect in books and making addition on that basis, addition is made by estimating the income. Thus canceling the penalty on the ground that income was determined on the basis of estimation.

Summary

Issues:
Levy of penalty under section 271(1) of the Income Tax Act based on estimation of unexplained purchases.

Analysis:
The judgment involves an appeal against the order of the ld. CIT(A)-IV, Surat, dated 30.12.2009, regarding the levy of penalty under section 271(1) of the Income Tax Act on the basis of unexplained purchases. The Assessing Officer had made various disallowances, including unexplained purchases, and initiated penalty proceedings. The ld. CIT(A) partly allowed the appeal, deleting additions on water charges and restricting the disallowance on bogus purchases to 25%. The Assessing Officer then levied a penalty, which was upheld by the ld. CIT(A), leading to the present appeal.

The authorized representative for the assessee argued that the penalty cannot be sustained when additions are based on estimation. Reference was made to a similar case where the penalty was deleted by the ITAT Ahmedabad. The Departmental Representative supported the orders of the authorities below, emphasizing the failure of the assessee to substantiate the claims.

The Tribunal considered the arguments and cited a previous decision where penalty was deleted for a similar case of estimated additions. The ld. CIT(A) in the present case upheld the penalty based on the finding of bogus purchases and the ratio of a specific case law. However, the Tribunal distinguished the facts of the present case from the judgment cited by the ld. CIT(A), emphasizing that the assessee maintained books of account, and the addition was made by estimation without specific defects in the books.

Ultimately, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to delete the penalty levied. The decision was based on following the precedent set by the Hon'ble Co-ordinate Bench in a previous case with similar circumstances.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting the distinction in facts from the cited case law and emphasizing the importance of specific defects in books of account for making additions based on estimation.