2017 (1) TMI 1698 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus purchases - assessee did not challenge the assessment order and accepted additions so made thereby accepting the concealment of income - HELD THAT - Additions as made by the AO was a pure estimate and nothing concrete as to bogus purchases were brought on records by the AO by making any further enquiries or investigation. In our view the penalty can not be imposed where the additions are made on estimate basis. AO was not justified in making the addition on the basis of statements given by the third parties before the Sales Tax Department, without conducting any other investigation. In the instant case also, the assessing officer has made the impugned addition on the basis of statements given by the parties before the Sales tax department. We are of the considered opinion that in view of the ratio in the various decisions as above penalty cannot be sustained. It is also a settled legal position of law that penalty cannot be levied wherein the assessment is made on estimation basis. Accordingly, we are inclined to uphold the order passed by the ld.CIT(A) by dismissing the appeal of the revenue.

Summary

Issues Involved:
1. Deletion of penalty u/s 271(1)(c) of the IT Act by CIT(A) for assessment year 2010-11 based on estimation and adhoc basis.

Detailed Analysis:

1. The appeal filed by the revenue challenged the CIT(A)'s decision to delete the penalty u/s 271(1)(c) of the IT Act amounting to ?15,10,274. The revenue contended that the penalty was justified due to the addition made on estimation and adhoc basis, related to bogus purchases. The AO found that the assessee failed to explain and substantiate the genuineness of the transactions, triggering default under Section 271(1)(c).

2. The CIT(A) deleted the penalty, emphasizing that the addition was based on estimation and not on adhoc basis. The CIT(A) observed that the penalty cannot be imposed without concrete evidence of concealment or furnishing inaccurate particulars. The CIT(A) cited judicial pronouncements and held that the penalty was not sustainable in the given circumstances.

3. The AO's assessment was based on a search by Sales Tax Authorities and a survey under the Income Tax Act, revealing accommodation entries. The AO rejected the assessee's explanations and concluded that bogus bills were provided without actual supplies. The AO made an adhoc addition and initiated penalty proceedings under Section 271(1)(c).

4. The assessee did not challenge the assessment order before the First Appellate Authority to avoid litigation. The AO levied a penalty of ?15,10,274, which the CIT(A) later deleted, stating that the addition was purely estimated and lacked concrete evidence of concealment.

5. The revenue contended that the CIT(A) erred in deleting the penalty without considering detailed findings by the AO. The revenue argued that the penalty should be upheld as the assessee did not challenge the assessment order before the First Appellate Authority.

6. The Tribunal analyzed similar cases where additions based on third-party evidence were deleted. The Tribunal held that penalties cannot be sustained where assessments are made on estimation basis. Citing precedents, the Tribunal upheld the CIT(A)'s decision to delete the penalty, dismissing the revenue's appeal.

7. The Tribunal emphasized that penalties cannot be levied when assessments are based on estimation and not concrete evidence. Relying on legal principles, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the penalty.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to delete the penalty imposed under Section 271(1)(c) of the IT Act for the assessment year 2010-11, based on the estimation and adhoc nature of the additions related to bogus purchases.