2021 (10) TMI 864 - AT - Income Tax

Penalty u/s 271(1)(c) - A.O. has estimated income/gross profit @ 8% on bogus purchases - HELD THAT - As when the addition is on estimated basis, penalty u/s 271(1)(c) of the Act cannot be levied on such adhoc estimated income. The disallowance of purchases on ad-hoc basis does not tantamount to furnishing inaccurate particulars of income under the provisions of Section 271(1) (c) of the Act. The A.O. has not doubted the sales and made 8% disallowance of bogus purchases and we rely on the ratio of the Honorable Jurisdictional High Court in the case of M/s Nikunj Eximp Enterprises 2014 (7) TMI 559 - BOMBAY HIGH COURT . Assessing officer made an addition based on the information received from Sales tax department Maharashtra. We are of the opinion that once the revenue accepts that penalty is levied on the basis of information from the outside agency/ department, the penalty is not sustained - Decided against revenue.

Summary

Issues:
Appeal against penalty orders under sections 271(1)(c) and 250 of the Income Tax Act, 1961.

Analysis:
1. The appeals were filed by the Revenue against penalty orders issued by the Commissioner of Income Tax (Appeals) under sections 271(1)(c) and 250 of the Income Tax Act, 1961. The issues in both appeals were common, so they were clubbed together for a consolidated order. The grounds of appeal raised by the Revenue included contentions regarding the deletion of penalty, applicability of Explanation-1 to Section 271(1)(c), and the monetary limit prescribed by CBDT Circulars. The Revenue sought to set aside the CIT(A)'s order and restore that of the Assessing Officer.

2. The case involved an assessee engaged in trading in chemicals who filed the return of income for A.Y 2009-10. The Assessing Officer received information indicating bogus purchase bills, leading to a reassessment. Despite the assessee's submissions, the AO estimated the profit element of bogus purchases at 8% and made additions to the total income. Subsequently, penalty proceedings were initiated under section 271(1)(c) based on the failure to prove the genuineness of transactions.

3. The CIT(A) considered the grounds of appeal, AO's findings, and the assessee's submissions. The CIT(A) noted the addition of 8% for bogus purchases in the assessment but observed that penalty was levied on estimated income in the penalty proceedings. Relying on legal precedents, the CIT(A) directed the AO to delete the penalty, leading to the Revenue's appeal before the Tribunal.

4. During the Tribunal hearing, the Revenue contended that the penalty should not have been deleted due to the bogus purchase transactions. However, the Tribunal noted that penalty on estimated income could not be levied under section 271(1)(c). It was emphasized that disallowance on an ad-hoc basis did not amount to furnishing inaccurate particulars of income. The Tribunal also highlighted that the AO's addition was based on information from external sources, and the penalty could not be sustained solely on that basis.

5. Ultimately, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's grounds of appeal. The decision was based on the legal principle that penalty on estimated income was not permissible under section 271(1)(c). The Tribunal found no new evidence presented by the Revenue to challenge the CIT(A)'s findings. The appeals filed by the Revenue against the penalty orders were thus dismissed.