2017 (11) TMI 1857 - AT - Income Tax

Penalty u/s 271(1)(c) - Unexplained expenditure u/s. 69C - bogus purchases made by the assessee based on the information received from the Sales Tax Department - AO estimated the profit element on the purchases at 12.5% and reduced the Gross Profit already declared by the assessee - HELD THAT - AO had made only adhoc estimation of profit on certain purchases treated as unexplained expenditure. Assessing Officer did not doubt the sales made by the assessee from out of such purchases. AO based on the decision in the case of CIT v. Simit P. Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT estimated the profit element in such purchases at 12.5% and by reducing the Gross Profit already declared by the assessee. We hold that there is no concealment of income or furnishing of inaccurate particulars as the profit element was determined by way of adhoc estimation. Coming to the interest, the assessee furnished complete details in the return of income and made a claim and simply because the claim is denied and cannot lead to furnishing of inaccurate particulars or concealment of income. No allegation by Assessing Officer that the assessee failed to disclose the particulars relating to its claim in the return of income. Thus we hold that there is no concealment of income or furnishing of inaccurate particulars of income. Thus we direct the Assessing Officer to delete the penalty levied u/s. 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars and concealing income.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2011-12, sustaining the penalty under section 271(1)(c) of the Act. The Assessing Officer disallowed interest expenses and treated certain purchases as unexplained expenditure, leading to the penalty proceedings.

2. The assessee contended that the purchases were genuine, supported by documentation, and the profit element was estimated adhoc by the Assessing Officer. The Assessing Officer also disallowed interest expenses, alleging they were not wholly and exclusively for earning interest. The Commissioner upheld the penalty.

3. The Tribunal noted that the Assessing Officer's estimation of profit on purchases was adhoc, based on Gujarat High Court precedent, and did not doubt the sales. Therefore, it was held that there was no concealment or furnishing of inaccurate particulars regarding the profit element. Regarding interest expenses, the Tribunal found that the assessee had provided complete details in the return of income, and the denial of the claim did not amount to concealment.

4. The Tribunal concluded that there was no concealment of income or furnishing of inaccurate particulars in either the estimation of profit on purchases or the disallowed interest expenses. Consequently, the penalty under section 271(1)(c) was directed to be deleted, and the appeal of the assessee was allowed.

5. The judgment was pronounced on 23rd November 2017 by the Appellate Tribunal ITAT Mumbai, with the direction to delete the penalty levied under section 271(1)(c) of the Income Tax Act.