2017 (8) TMI 1667 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition on account of non-genuine/bogus purchases - assessment was reopened on the basis of the information received from the DGIT (Investigation) that during the impugned assessment year, the assessee made purchases from the dealers, who were shown as hawala dealers in the website of the Sales tax Department of State of Maharashtra - HELD THAT - AO on the basis of the gross profit percentage, disallowed 12.5% out of the total purchases made from the four such hawala dealers. Admittedly, the addition was made on estimation basis. As in the case of Ruchi Developers 2015 (6) TMI 1094 - ITAT AHMEDABAD and Earthmoving Equipment Service Corporation 2017 (5) TMI 474 - ITAT MUMBAI , has taken a view that when a assessee made a bona fide claim coupled with documentary evidence but the same remained inconclusive for want of confirmation from the suppliers and the Assessing Officer has not made further inquiry to verify the correctness of the confirmation, the imposition of penalty is not justifiable. Thus, respectfully following the decisions of the co-ordinate Benches of this Tribunal, we find that the penalty made on estimated disallowance is not sustainable. As a result, the penalty levied is set aside and the appeal of the assessee is allowed.

Summary

Issues:
Penalty under section 271(1)(c) of the Income-tax Act 1961 for alleged non-genuine purchases.

Analysis:
The appeal was filed by the assessee against the order of the CIT(A)-37, Mumbai, for AY 2009-10, challenging the penalty levied under section 271(1)(c) of the Income-tax Act 1961 amounting to RS. 89,580 for alleged non-genuine purchases. The assessment was completed under section 143(3) r.w.s 147 of the IT Act, 1961, with an addition of RS. 2,89,894 on account of non-genuine/bogus purchases, made on an estimate basis. The Assessing Officer issued a notice for penalty under section 271(1)(c) of the Act, which was contested by the assessee providing various documents to establish the genuineness of the transactions. However, the Assessing Officer rejected the explanation and levied a penalty of RS. 89,580. The CIT(A) upheld the penalty, leading to the appeal before the tribunal.

The tribunal considered the arguments presented by both parties. The AR of the assessee contended that no penalty should be levied as the addition was made on an estimate basis and not as a result of concealment or inaccurate filing of income. The AR relied on previous tribunal decisions and a High Court decision to support the argument that penalty on estimated disallowance is not justifiable when the assessee provides documentary evidence but lacks confirmation from suppliers, and the Assessing Officer fails to conduct further inquiry. The DR, on the other hand, supported the orders of the authorities below, emphasizing the investigation that uncovered the hawala dealer modus operandi involving the assessee.

After examining the material on record, the tribunal noted that the assessment was based on information from the DGIT (Investigation) regarding purchases from dealers identified as hawala dealers. The Assessing Officer disallowed 12.5% of purchases from hawala dealers based on gross profit percentage, which was an estimation. Citing decisions from co-ordinate benches, the tribunal concluded that when an assessee makes a bona fide claim supported by evidence, but lacks confirmation from suppliers and the Assessing Officer does not further verify, imposing a penalty on estimated disallowance is not justifiable. Consequently, the tribunal set aside the penalty, allowing the appeal of the assessee.

In conclusion, the tribunal ruled in favor of the assessee, setting aside the penalty levied under section 271(1)(c) of the Income-tax Act 1961 for alleged non-genuine purchases, based on the lack of conclusive evidence and further verification by the Assessing Officer.