2016 (5) TMI 1401 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - addition on account of certain bogus purchases - Held that - The materials brought on record are sufficient to establish that the purchases reportedly made by the assessee from the parties recorded in the books, were not purchased from them. It is equally true that the assessee would not have been above to sell the goods without making purchases. It is quite possible that the assessee might have purchased the goods from gray market without proper receipts and in that process saved about 25% or so as the price of the goods in the gray market is lower than the price of the goods charged by the reputed dealers. In this view of the matter, it would be proper to restrict the disallowance to the extent of 25% of the bogus purchases reportedly made by the assessee. The Assessing Officer is directed to restrict the addition to 25% of the bogus purchases in all the three years. Thus it shows that the restriction of the disallowance is made purely on estimation. Thus, it can be safely concluded that the additions were made on mere presumption and not on the basis of any material fact not disclosed by the assessee. A perusal of the orders of the authorities below in the assessment proceedings show that the purchases were well supported by bills/invoices though the parties from whom the purchases were made were found to be either name lenders or issuing accommodation bills.Thus levy of penalty u/s. 271(1)(c) of the Act not to be levied - Decided in favour of assessee.

Summary

Issues:
Appeals against penalty under section 271(1)(c) for assessment years 2002-03 to 2004-05.

Analysis:
The appeals were filed against the penalty imposed under section 271(1)(c) for the assessment years 2002-03 to 2004-05. The penalty was based on additions made during the assessment proceedings on account of alleged bogus purchases claimed to have been made from a specific corporation. The Tribunal had previously accepted the purchases but restricted the disallowance to 25% of the alleged bogus purchases. The main contention was that the additions were made on estimation and not on concrete evidence. The Tribunal found that the purchases were supported by bills/invoices, although the parties from whom the purchases were made were identified as name lenders or issuing accommodation bills.

The Co-ordinate Bench's finding indicated that the restriction of disallowance was based on estimation, suggesting that the additions were made on presumption rather than concrete evidence. The Tribunal concluded that the additions sustained on an estimation basis were not sufficient to warrant the imposition of a penalty under section 271(1)(c) of the Act. Therefore, the Tribunal set aside the findings of the CIT(A) and directed the Assessing Officer to delete the penalties imposed for all the assessment years under consideration.

In summary, the Tribunal allowed the appeals filed by the assessee, emphasizing that the penalty under section 271(1)(c) was not justified based on the facts and circumstances of the case. The decision was based on the lack of concrete evidence supporting the additions made during the assessment proceedings, which were deemed to be primarily estimation-based rather than factually substantiated.