2021 (5) TMI 377 - AT - Income Tax

Penalty levied under 271(1) - Estimation of income on bogus purchases - HELD THAT - Disallowance has been made on an estimated basis on account of the non-production of suppliers before the assessing officer. The purchase vouchers were duly produced. No notice to the alleged bogus supplier has been issued by the AO. In these backgrounds in our considered opinion assessee cannot be visited with the rigours of penalty under section 271(1)(c) of the Act. As a matter of fact on many occasions on similar circumstances in quantum proceedings the disallowance itself has been deleted, on the touchstone of case of Nikunj Eximp Enterprises Pvt. Ltd. 2013 (1) TMI 88 - BOMBAY HIGH COURT - assessee cannot be said to have been guilty of concealment or furnishing of inaccurate particulars of income. In this regard we draw support from the decision of Hindustan Steel Ltd. Vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT where in it was held that the authority may not levy the penalty if the conduct of the assessee is not found to be contumacious. We set aside the order's of Ld. CIT-A and delete the levy of penalty. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act - Disallowance of purchases as bogus - Non-production of suppliers - Levy of penalty by CIT(A) - Assessee's appeal against the penalty.

Analysis:
The case involved appeals by the assessee against a penalty levied under section 271(1)(c) of the Income Tax Act, sustaining disallowance of purchases as bogus by the assessing officer. The assessing officer made an ad hoc estimate of 20% purchases being bogus purchases, resulting in a gross profit ratio disallowance of 3.89%. The assessing officer raised concerns regarding frequent cash transactions and transfers to different accounts, leading to suspicion of the genuineness of purchases. Despite the assessee providing purchase vouchers and relevant details, the assessing officer treated 20% of the purchases as bogus due to non-production of suppliers. The CIT(A) confirmed the addition and levied the penalty under section 271(1)(c).

Upon careful consideration, the tribunal noted that the assessing officer had not issued notices to the alleged bogus suppliers and did not specify the deficiencies or the quantum of purchase vouchers involved. The tribunal observed that the disallowance was made on an estimated basis without doubting the sales and emphasized that the purchase vouchers were duly produced by the assessee. Citing the jurisdictional High Court decision and a larger bench decision of the Supreme Court, the tribunal concluded that the assessee could not be deemed guilty of concealment or furnishing inaccurate particulars of income. Relying on legal precedents, the tribunal set aside the CIT(A)'s order and deleted the levy of penalty.

In conclusion, the tribunal allowed both appeals of the assessee, emphasizing that the penalty under section 271(1)(c) was unwarranted in the given circumstances. The decision was pronounced in open court on 6th April 2021.