2017 (2) TMI 1104 - AT - Income Tax

Penalty u/s 271(1)(c) - addition on bogus purchases - Held that - The basis adopted by the Assessing Officer for making addition or disallowance may or may not be justified as far as legality of the addition made in the quantum proceedings is concerned, but for levy of penalty these basis are indeed insufficient and not tenable in the eyes of Law. It is well established law that parameters for making the addition/disallowances are a different from levy of the penalty u/s 271 (1) (c) of the Act. There may be cases where claim of the assessee may remain unproved during the course of assessment proceedings for want of substantiation, but for the purpose of levy of penalty the AO is required to disprove the claim of assessee. The AO must show that the claim of the assessee is bogus or false. In the facts of this as were brought before us, in our opinion, the claim of the assessee was not proved as bogus or false. The AO levied the penalty merely on the basis of his allegations which were unsupported with any cogent material or evidences. We find that in the facts as have been brought out before us, the case of the assessee should not have been visited with levy of penalty. The assessee brought on record all the primary evidences as could have been adduced by the him, but AO did not place on record even a single piece of evidence to controvert or negate the evidences brought on record by the assessee. Thus, the peculiar facts of this case do not permit the AO to levy penalty on the assessee. - Decided in favour of assessee.

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Evaluation of the genuineness of purchases and the onus of proof.
3. Relevance of the judgment in CIT vs. Reliance Petro Products (2010) in the current case.
4. Justification for the quantum addition made by the Assessing Officer (AO).

Detailed Analysis:

Issue 1: Deletion of Penalty Levied under Section 271(1)(c) of the Income Tax Act
The central issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the penalty imposed by the AO under Section 271(1)(c) of the Income Tax Act. The AO had levied a penalty at 200% of the tax sought to be evaded, amounting to ?10,35,568/-, on the grounds that the purchases from M/s Centurian Sales Corporation were bogus. The CIT(A) deleted this penalty, and the Revenue appealed against this decision.

Issue 2: Evaluation of the Genuineness of Purchases and the Onus of Proof
The assessee argued that all necessary documentary evidence, including account payee cheques, bank statements, and delivery challans, were provided to substantiate the genuineness of the purchases. The AO, however, did not accept these submissions, citing the supplier as a hawala dealer and alleging that the purchases were bogus. The CIT(A) examined these evidences and concluded that the penalty was not justified, as the AO failed to prove that the purchases were indeed bogus. The Tribunal noted that the assessee had successfully discharged its primary onus by providing ample evidence, including invoices, weighment slips, and quality inspection reports, which were not effectively countered by the AO.

Issue 3: Relevance of the Judgment in CIT vs. Reliance Petro Products (2010)
The CIT(A) relied on the judgment in CIT vs. Reliance Petro Products (2010), which established that penalty proceedings are separate from assessment proceedings. The CIT(A) observed that the AO's belief, based on information from the Sales Tax Department, was insufficient to levy a penalty without concrete evidence of concealment or furnishing of inaccurate particulars by the assessee. The Tribunal upheld this view, emphasizing that the AO must disprove the assessee's claim with cogent evidence to justify the penalty.

Issue 4: Justification for the Quantum Addition Made by the AO
The AO made the quantum addition based on the information from the Sales Tax Department, which listed the supplier as a hawala dealer. The CIT(A) noted that while the addition could be justified in the assessment proceedings, it did not automatically warrant a penalty under Section 271(1)(c). The Tribunal agreed, stating that the parameters for making additions differ from those for levying penalties. The Tribunal cited the Gujarat High Court's judgment in National Textiles vs. CIT, which clarified that unexplained cash credits could lead to additions but not necessarily to penalties without evidence of conscious concealment or inaccurate particulars.

Conclusion:
The Tribunal concluded that the CIT(A) was correct in deleting the penalty, as the AO failed to provide sufficient evidence to prove the purchases were bogus. The assessee had provided ample evidence to substantiate the purchases, and mere allegations by the AO, unsupported by concrete evidence, were insufficient for levying a penalty. The appeal filed by the Revenue was dismissed, and the order of the CIT(A) was upheld.

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