2014 (12) TMI 715 - AT - Income Tax

Deletion of penalty u/s 271(1)(c) Addition restricted on unexplained receipt against bogus purchases - CIT(A) was of the view that the books of accounts to be rejected and because of no positive act of concealment on the part of the assessee has been brought on record, the penalty u/s 271(1)(c) is not sustainable - Held that - CIT(A) made addition of ₹ 10,00,000/- by enhancing the sale of the assessee by rejecting the books of account and such finding of the CIT(A) clearly shows that he has accepted the purchases shown by the assessee - the basis of levying of penalty by the AO has itself not been found sustainable the same issue has been already decided in Harigopal Singh Vs. Commissioner of Income Tax 2002 (8) TMI 65 - PUNJAB AND HARYANA High Court wherein it has been held that the provisions of section 271 (1 )(c) are not attracted in order to attract section 271(1)(c), it is necessary that there must be concealment by the assessee of the particulars of his income or if he furnishes inaccurate particulars of such income - there had to be a positive act of concealment on the part of the assessee and the onus to prove that was on the department here, no such positive act of concealment on the part of the assessee has been brought on the record and the addition sustained is only on estimated basis - the basis for levying of penalty by the AO u/s 271(1)(c) that the assessee is guilty of furnishing of inaccurate particulars of her income by showing bogus purchases is not found to be correct after the assessment order passed in this regard. The books of account of the assessee were initially rejected and the AO has made the additions under different heads and in appeal, the CIT(A) has deleted the additions made under the head unexplained cash credit and u/s 40A(3) of the Act on account of cash payment - under the head unexplained receipt against bogus purchases, the addition was made by the AO, but in appeal the CIT(A) has restricted it to ₹ 10 lakhs only on estimate basis - therefore, no positive act of concealment of income chargeable to tax has been brought out on record - since the addition was made on estimate basis, the penalty u/s 271(1)(c) is not leviable thus, CIT(A) rightly held that penalty cannot be levied on estimated addition Decided against revenue.

Summary

Issues Involved:
1. Whether the penalty under section 271(1)(c) of the Income-tax Act, 1961 is justified when the addition to income is made on an estimate basis after rejecting the books of account.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) on Estimated Addition:

The appeal was filed by the Revenue against the order of the CIT(A), which deleted the penalty of Rs. 3.80 lakhs levied under section 271(1)(c) of the Income-tax Act, 1961. The primary contention was that the CIT(A) erred in law and on facts by deleting the penalty, ignoring the detailed discussion by the Assessing Officer (AO) that led to the addition.

Facts and Background:
The AO initially made an addition of Rs. 79,94,642/- on account of unexplained receipt against bogus purchases. The CIT(A) re-examined the issue and restricted the addition to Rs. 10 lakhs. The AO then levied a penalty of Rs. 3.80 lakhs under section 271(1)(c) based on this restricted addition. The assessee appealed, arguing that the addition was on an estimate basis after rejecting the books of account.

CIT(A)'s Observations:
The CIT(A) noted that the addition of Rs. 10 lakhs was an estimated addition and not based on any factual finding of concealment. The books of account were audited and accepted by the Sales Tax Authorities. The CIT(A) observed that there was a difference of opinion between the AO and the CIT(A) regarding the nature of the purchases, with the CIT(A) rejecting the books of account and estimating the sales instead of treating the purchases as bogus.

Legal Precedents:
The CIT(A) referenced several judicial decisions, including:
- Harigopal Singh Vs. Commissioner of Income Tax (Punjab & Haryana High Court): It was held that in cases of estimated additions, the provisions of section 271(1)(c) are not attracted as there must be a positive act of concealment.
- Naresh Chand Agarwal Vs. Commissioner of Income Tax-1 Lucknow (Allahabad High Court): Penalty under section 271(1)(c) cannot be imposed when the addition is made on an estimate basis.
- Vijay Kumar Jain (Chattisgarh High Court): No penalty can be levied in cases of estimating the rate of profit.

Tribunal's Observations:
The Tribunal found that the books of account were initially rejected, and the AO made additions under different heads. The CIT(A) deleted the additions under unexplained cash credit and section 40A(3) but restricted the addition under unexplained receipt against bogus purchases to Rs. 10 lakhs on an estimate basis. The Tribunal emphasized that no positive act of concealment was brought on record, and since the addition was on an estimate basis, the penalty under section 271(1)(c) is not leviable.

Conclusion:
The Tribunal confirmed the order of the CIT(A), stating that penalty cannot be levied on estimated additions. The appeal of the Revenue was dismissed as no positive act of concealment was established, and the addition was made on an estimate basis.

Result:
The appeal of the Revenue is dismissed. The order was pronounced in the open court.