2021 (2) TMI 884 - AT - Income Tax

Penalty u/s 271(1)(c) - Bogus purchases - in assessment proceedings had failed to substantiate the genuineness and veracity of its claim of having made purchases - HELD THAT - As assessee could not substantiate the genuineness of the purchases claimed to have been made from the aforementioned party to the satisfaction of the A.O, the same, for the said reason was disallowed by him - we cannot remain oblivious of the fact that the A.O had at no stage rejected the book results of the assessee and had in fact accepted its sales. We are of a strong conviction that though the failure on the part of the assessee to substantiate the authenticity of the aforesaid purchase transaction would justify an addition/disallowance to the said extent, however, the same by no means would on such standalone basis justify levy of penalty under Sec. 271(1)(c). If an assessee gives an explanation which is unproved but not disproved i.e though the same is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee‟s case is false, then, no penalty under Sec.271(1)(c) can justifiably be imposed. Our aforesaid view is supported by the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Upendra Vs. Mithani 2009 (8) TMI 1159 - BOMBAY HIGH COURT . Accordingly we are of a strong conviction that in the absence of documentary evidence supporting the genuineness of the purchases claimed by the assessee to have been made from the aforementioned party, the same, though could have been disallowed, however, on the said standalone basis penalty under Sec.271(1)(c) could not have been validly imposed. Not finding ourselves to be in agreement with the view taken by the lower authorities, we, thus vacate the penalty. - Decided in favour of assessee.

Summary

Issues:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 without appreciating the legal validity of the notice initiating penalty.
2. Upholding the penalty under section 271(1)(c) for alleged concealed income on account of disallowed purchases without proving concealment of income or filing inaccurate particulars.

Analysis:
1. The appeal challenged the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the notice initiating the penalty was legally flawed. The A.O disallowed purchases made from a supplier, suspecting them to be non-genuine. Despite the assessee's attempts to substantiate the purchases, the A.O added the amount to the income, leading to the penalty imposition. The CIT(A) upheld the penalty, prompting the appeal to the ITAT.

2. The assessee failed to prove the authenticity of the purchases from the supplier, leading to the disallowance by the A.O. The A.O imposed a penalty under section 271(1)(c) based on the disallowed purchases. However, the ITAT found that while the purchases could be disallowed, the penalty was not justified solely on that ground. The ITAT emphasized that unproven explanations, if not disproven, do not warrant penalty imposition. Citing a Bombay High Court judgment, the ITAT concluded that without documentary evidence supporting the purchases, the penalty could not be validly imposed.

3. The ITAT's decision highlighted the importance of substantiating claims with documentary evidence to avoid penalty under section 271(1)(c). While the disallowance of purchases was upheld, the ITAT emphasized the necessity of concrete evidence to justify penalties. The judgment provided clarity on the burden of proof in tax penalty cases, emphasizing the need for a strong evidential basis for penalty imposition.

4. Ultimately, the ITAT allowed the appeal, vacating the penalty of ?76,000 imposed under section 271(1)(c) by the A.O. The decision underscored the significance of evidence in tax matters and the requirement for a robust basis for penalty imposition. The judgment served as a reminder of the legal standards and evidentiary requirements in tax penalty cases, ensuring a fair and just application of the law.