2021 (8) TMI 113 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of 20% on account of bogus purchases - Monetary limit for filing appeal - The revenue has tried to make out a case that since the addition was made pursuant to information from sales tax department, this penalty appeal falls in the exception carved out in the CBDT circular - 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 and the payments were through banking channel - assessee cannot be visited with the rigours of penalty under section 271(1)(c). As a matter of fact on many occasions on similar circumstances in quantum proceedings the disallowance itself has been deleted. In our considered opinion, on the facts and circumstances of the case, 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. As tax effect in this case is below the limit fixed by CBDT for filing appeals before ITAT. The revenue has tried to make out a case that since the addition was made pursuant to information from sales tax department, this penalty appeal falls in the exception carved out in the CBDT circular regarding appeals arising out of additions made pursuant to information from outside agencies. We are of the opinion that this plea is not tenable inasmuch as once revenue accepts that penalty is levied on outside agency information /the penalty levied will have no legs to stand. In the background of aforesaid discussion and precedent, we uphold 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) for alleged concealment of income based on estimated disallowance of 20% on bogus purchases.

Analysis:
The case involved an appeal by the revenue against the deletion of a penalty under section 271(1)(c) by the CIT(A). The Assessing Officer had disallowed 20% of alleged bogus purchases, despite the assessee providing purchase vouchers and evidence of payment through banking channels. The CIT(A) deleted the penalty, emphasizing that the AO did not question the correctness of the details provided by the assessee to prove the purchases. The CIT(A) held that penalty cannot be imposed on estimated additions without clear evidence of concealment or furnishing inaccurate particulars of income. Citing various court precedents, including the Delhi High Court, Punjab & Haryana High Court, and Gujarat High Court, the CIT(A) concluded that penalty based on estimated net profit is not sustainable.

The ITAT Mumbai, comprising of Shri Shamim Yahya and Shri Pavan Kumar Gadale, considered the arguments presented by the revenue and reviewed the facts of the case. The ITAT noted that the disallowance was made on an estimated basis due to the nonproduction of suppliers, even though purchase vouchers were provided, and payments were made through banking channels. The ITAT opined that in such circumstances, the assessee should not be penalized under section 271(1)(c). Referring to a decision by a larger bench of the Supreme Court in the Hindustan Steel Ltd. case, the ITAT highlighted that penalty should not be levied if the assessee's conduct is not contumacious.

Additionally, the ITAT observed that the tax effect in the case was below the limit set by the CBDT for filing appeals before the ITAT. The revenue argued that the penalty appeal fell under an exception related to appeals arising from information provided by outside agencies. However, the ITAT rejected this argument, stating that if the penalty was based on such information, it would not be valid. Considering the discussion and precedents, the ITAT upheld the CIT(A)'s decision and dismissed the revenue's appeal, thereby deleting the penalty under section 271(1)(c).

In conclusion, the ITAT affirmed the CIT(A)'s order, emphasizing that the penalty on estimated additions without clear evidence of concealment or furnishing inaccurate particulars of income is not sustainable. The ITAT also highlighted the importance of considering the conduct of the assessee before imposing penalties and dismissed the revenue's appeal, thereby deleting the penalty levied under section 271(1)(c).