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2016 (11) TMI 887 - AT - Income TaxPenalty u/s 271(1)(c) - Held that - Evidence possessed by the AO is an information transmitted by the Department from the assessment proceedings of M/s.Prakash Marbles and Engineering Company. There is no independent affidavit collected from the proprietor of Girnar Sales Corporation and M/s.Shiv Metal Corporation. The assessee was not provided material collected in the assessment proceedings of different entities. The assessee has given complete details as to how it had made payment through account payee cheque and how it has procured material. If both these set of evidences are weighed together, then, scale would tilt in favour of the assessee, because there is no crossverification at the end of the AO by confronting the material to the assessee which was collected from the proceedings of a third concern. The AO failed to prove that bills and other evidences submitted by the assessee are factually false. The addition has been made on an estimate basis, thus penalty need not to be imposed - Decided in favour of assessee.
Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of evidence used by the Assessing Officer (AO). 3. Adequacy of the assessee’s explanation and evidence. Detailed Analysis: 1. Confirmation of Penalty under Section 271(1)(c): The primary issue in the appeal is the confirmation of a penalty amounting to ?5,11,500/- imposed by the AO under section 271(1)(c) of the Income Tax Act, 1961. The penalty was based on the disallowance of ?14,32,750/- for purchases deemed bogus from M/s. Girnar Sales Corporation and M/s. Shiv Metal Corporation. The Tribunal had previously restricted the addition to 30% of the purchases, recognizing that the net profit from such bogus purchases could not exceed 30%. Despite this, the penalty was computed on the full amount of ?14,32,750/-. 2. Validity of Evidence Used by the AO: The AO's evidence was derived from the assessment proceedings of M/s. Prakash Marbles and Engineering Company, where proprietors of Girnar Sales Corporation and Shiv Metal Corporation admitted to issuing accommodation bills. However, this evidence was not independently verified or directly confronted with the assessee. The assessee argued that no direct evidence was found in their case and that the AO relied on material from another entity's assessment without providing it to the assessee for rebuttal. 3. Adequacy of the Assessee’s Explanation and Evidence: The assessee provided detailed submissions and evidence to support the genuineness of the purchases, including: - Bills from Girnar Sales Corporation and Shiv Metal Corporation. - Evidence of payment by cheque. - Quantitative tally showing the material used for executing a contract with GMDC Ltd. - Affidavit from the partner of the assessee firm confirming the use of purchased materials for the GMDC contract. The assessee contended that the AO ignored this evidence and relied solely on the affidavits from the third parties without cross-verification. The Tribunal noted that the AO failed to prove the falsity of the bills and other evidence submitted by the assessee, making the penalty imposition unjustified. Judgment: The Tribunal found that the AO's evidence was insufficient as it was based on information from another entity's assessment without independent verification. The assessee provided substantial evidence to support the legitimacy of the purchases and their use in executing a contract. The Tribunal highlighted that the penalty under section 271(1)(c) requires clear evidence of concealment or furnishing inaccurate particulars, which was not established in this case. The Tribunal referred to similar cases where penalties were deleted under analogous circumstances. Conclusion: The Tribunal allowed the appeal, deleting the penalty imposed by the AO. The decision emphasized the importance of providing the assessee with an opportunity to rebut evidence and the necessity for the AO to independently verify claims before imposing penalties. The judgment reinforced that penalties should not be based on estimated additions without concrete proof of concealment or inaccuracy in particulars furnished by the assessee. Order: The appeal of the assessee was allowed, and the penalty of ?5,11,500/- was deleted. The order was pronounced on 11th November, 2016, at Ahmedabad.
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