2019 (6) TMI 928 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - addition of bogus purchase of the assessee without actual supply of goods - HELD THAT - The Chhattisgarh High Court in the case of CIT v. Vijay Kumar Jain 2010 (4) TMI 386 - CHHATTISGARH HIGH COURT has held that the assessee declared the net profit by estimating it at the rate of 6.36 per cent. of his gross receipt while it was estimated at the rate of 10 per cent of gross receipts by the Assessing Officer and on these facts held that penalty for concealment cannot be levied as the assessee cannot be said to have concealed any particulars of income or furnished any inaccurate particulars of income. Also decided in SHRI NAVEEN AGARWAL VERSUS I.T.O., KISHANGARH. 2019 (4) TMI 674 - ITAT JAIPUR A.O. made addition by estimating the profit @ 22.7% on the alleged unrecorded sales. After considering the entire facts and circumstances while disposing the quantum appeal hereinabove we have directed the A.O. to estimate the profit @ 15% and upheld the addition only to that extent. It is clear that the addition to the income is based on estimate of profit rate when the A.O. passed order vis a vis when we dispose the quantum appeal. In such estimated addition, no penalty is to be levied - thus we delete the penalty levied U/s 271(1)(c) of the Act for the assessment year 2010-11. - Decided in favour of assessee. Levy of penalty u/s 271AAA - assessee has submitted once the Tribunal has restricted the addition to 15% alleged /bogus purchases then the income of the assessee was estimated the addition to the income of the assessee is based on presumption and estimation - HELD THAT - We note that the addition made by the AO is identical to the addition for the assessment year 2010-11. We already produced the order of this Tribunal as well as judgment of Hon ble Jurisdictional High Court in the quantum appeals. Accordingly, in view of our finding for the assessment year 2010-11 the penalty levied U/s 271AAA of the Act against the addition made to the income of the assessee based on estimation/presumption is not sustainable consequently the same is deleted. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Validity of penalty proceedings initiated with a defective notice.
3. Penalty imposed on estimated additions based on unverifiable purchases.
4. Application of Explanation 5A to Section 271(1)(c).
5. Consideration of observations made by the High Court regarding estimated additions.

Detailed Analysis:

1. Confirmation of Penalty Levied Under Section 271(1)(c):
The primary issue was whether the penalty under Section 271(1)(c) was justified. The assessee argued that the penalty was unwarranted because the additions were based on estimated unverifiable purchases. The Tribunal noted that the Assessing Officer (AO) made additions based on incriminating material found during a search and seizure, which included bogus purchases from M/s Shri Krishna Surgicals. However, the Tribunal ultimately restricted the additions to 15% of the unverifiable purchases, following the precedent set in a similar case (Anuj Kumar Varshney). The Tribunal concluded that the penalty could not be sustained because the additions were based on estimates rather than concrete evidence of concealment.

2. Validity of Penalty Proceedings Initiated with a Defective Notice:
The assessee contended that the penalty notice was defective as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal did not explicitly address this issue in detail but focused on the nature of the additions and the basis for the penalty. The Tribunal's decision to delete the penalty implicitly suggests that procedural defects in the penalty notice might have influenced their decision.

3. Penalty Imposed on Estimated Additions Based on Unverifiable Purchases:
The Tribunal emphasized that penalties under Section 271(1)(c) are not justified when additions are made on an estimated basis. Citing various judicial precedents, including CIT vs. Krishi Tyre Retreading and Rubber Industries and others, the Tribunal noted that penalties cannot be imposed merely because the books of accounts were rejected, or profits were estimated. The Tribunal highlighted that the addition was based on presumptions and estimates, which do not constitute concrete evidence of concealment or inaccurate particulars.

4. Application of Explanation 5A to Section 271(1)(c):
The AO invoked Explanation 5A to Section 271(1)(c), deeming the assessee to have concealed income related to bogus purchases. However, the Tribunal found that the conditions under Explanation 5A were not met, as the additions were not based on any specific entries in the books of accounts or documents. The Tribunal reiterated that the penalty could not be sustained when the addition was based on estimated unverifiable purchases.

5. Consideration of Observations Made by the High Court Regarding Estimated Additions:
The High Court had previously observed that the 15% disallowance was based on presumption and not beyond reasonable doubt. The Tribunal took these observations into account, reinforcing that penalties cannot be imposed on estimated additions. The Tribunal noted that the High Court's observations further supported the view that the case was not beyond reasonable doubt, and thus, the penalty under Section 271(1)(c) was not sustainable.

Conclusion:
The Tribunal allowed the appeals, deleting the penalties levied under Sections 271(1)(c) and 271AAA for the assessment years 2010-11 to 2012-13. The decision was based on the principle that penalties cannot be imposed on estimated additions, especially when such estimates are based on unverifiable purchases and lack concrete evidence of concealment or inaccurate particulars. The Tribunal's reliance on judicial precedents and the High Court's observations played a crucial role in reaching this conclusion.

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