2016 (5) TMI 464 - AT - Income Tax

Penalty u/s 271(1)(c) - inaccurate particulars of income towards unverifiable purchases - Held that - Purchases are supported with the bills issued by the suppliers and the purchases of the assessee have not been questioned by the Assessing Officer during the course of assessment proceedings and neither any details are available on record to prove that additions have been made in the previous years in regard to unverifiable purchases. Also books of account of the assessee are audited under the Companies Act and under the provisions of section 44AB of the Act and they have not been rejected by the assessing authority. In such situation ld. Assessing Officer cannot draw an inference that assessee has furnished inaccurate particulars of income because records were duly submitted and no independent enquiry was carried out by the Assessing Officer to prove that balance standing under the head sundry creditors were not genuine The assessee has duly shown complete details of sundry creditors in its return of income for this year under appeal and in past also and addition for unverifiable purchases have been made without conducting any independent enquiry therefore, it is not a fit case for levy of penalty u/s 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

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

Detailed Analysis:

1. Background and Assessment Details:
The appeal was against the order of CIT(A)-I, Surat, regarding penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2005-06. The assessee, a private limited company, was engaged in textile business. The assessment resulted in additions for unverifiable purchases and non-compliance with section 40(a)(ia) of the Act.

2. Penalty Imposition and CIT(A) Decision:
The penalty under section 271(1)(c) was imposed for furnishing inaccurate particulars of income. The CIT(A) partly confirmed the penalty on unverifiable purchases but deleted the penalty related to non-compliance with section 40(a)(ia). The penalty amount was reduced from the original imposition.

3. Appellant's Arguments and Tribunal's Analysis:
The appellant argued financial difficulties leading to the closure of the business, reduction in working capital, and efforts to pay off creditors. The Tribunal noted a significant decrease in turnover and observed the reduction in sundry creditors, indicating genuine payments. The Tribunal found the assessee's explanations reasonable and supported by audited accounts, rejecting the Assessing Officer's failure to verify the creditors independently.

4. Judicial Precedent and Conclusion:
The Tribunal referred to a similar case where penalties were canceled due to genuine explanations and legal interpretations. Following the precedent, the Tribunal concluded that the assessee had provided complete details of sundry creditors and unverifiable purchases, justifying the cancellation of the penalty under section 271(1)(c). The appeal was allowed, and the penalty was deleted.

5. Final Decision and Order:
The Tribunal pronounced the order on 01/04/2016, allowing the appeal of the assessee based on the lack of merit for penalty imposition. Other grounds were considered of general nature and not adjudicated upon.