2022 (2) TMI 1343 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - Estimation of income - bogus purchases - HELD THAT - We are of the opinion that when the addition is on estimated basis, penalty u/s 271(1)(c) of the Act cannot be levied on such adhoc estimated income. Disallowance of purchases on ad-hoc basis does not tantamount to furnishing inaccurate particulars of income under the provisions of Section 271(1) (c) of the Act. AO has not doubted the sales and made disallowance of bogus purchases and we rely on the ratio of the Honorable Jurisdictional High Court in the case of M/s Nikunj Eximp Enterprises 2014 (7) TMI 559 - BOMBAY HIGH COURT Further the assessing officer made an addition based on the information received from Sales tax department Maharashtra since the said information could not conclusively be proved. DR could not controvert the findings of the CIT(A) with any new cogent evidences or information to take different view - we are not inclined to interfere with the order of the CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue.

Summary

Issues:
1. Penalty levied based on information from Sales Tax Department for bogus purchases.
2. Deletion of penalty by CIT(A) due to inability to substantiate purchases.
3. Applicability of penalty under Section 271(1)(c) on estimated income.

Analysis:

Issue 1: Penalty based on information from Sales Tax Department
The revenue appealed against the order of the National Faceless Appeal Centre (NFAC) concerning the penalty levied on the appellant for bogus purchases based on information from the Sales Tax Department. The revenue contended that the penalty was justified as the appellant failed to substantiate the genuineness of the purchases. The AO made an addition to the income, leading to penalty proceedings under Section 271(1)(c) of the Act.

Issue 2: Deletion of penalty by CIT(A)
The CIT(A) considered the grounds of appeal, AO's findings, and the appellant's submissions. The CIT(A) observed that the AO had made additions for bogus purchases in the assessment, which were later restricted by the Tribunal. The CIT(A) noted that penalty cannot be levied on estimated income and directed the AO to delete the penalty. The revenue challenged this decision before the Tribunal.

Issue 3: Applicability of penalty under Section 271(1)(c) on estimated income
During the hearing, the revenue argued that the penalty should not have been deleted as the appellant had obtained bogus purchase bills, which were crucial information received by the AO. However, the Tribunal upheld the CIT(A)'s decision, stating that penalty under Section 271(1)(c) cannot be levied on ad-hoc estimated income. The Tribunal relied on the judgment of the High Court and found no new evidence to warrant a different view.

In conclusion, the Tribunal dismissed the revenue's appeal, stating that the disallowance of purchases on an ad-hoc basis does not constitute furnishing inaccurate particulars of income under Section 271(1)(c) of the Act. The Tribunal upheld the CIT(A)'s decision, as the revenue failed to provide new evidence to challenge the findings. The appeal was dismissed, and the order was pronounced on 03.02.2023.