2006 (10) TMI 181 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of penalty imposed u/s 271(1)(c) of the IT Act, 1961.
2. Genuineness of transactions with A.R. Traders.
3. Adequacy of opportunity provided to the assessee.
4. Consideration of additional evidence in penalty proceedings.

Summary:

1. Cancellation of Penalty Imposed u/s 271(1)(c):
The appeal by the Revenue challenges the cancellation of a penalty of Rs. 4,22,772 imposed u/s 271(1)(c) for the assessment year 1998-99. The CIT(A) had cancelled the penalty, but the ITAT restored it, finding that the assessee failed to establish the genuineness of the loss claimed in transactions with A.R. Traders.

2. Genuineness of Transactions with A.R. Traders:
The assessee claimed a loss of Rs. 11.02 lakhs on the sale of fabric purchased from A.R. Traders, which the AO found to be bogus. The AO's enquiry revealed that A.R. Traders did not exist at the given address and that the transactions were highly improbable. The CIT(A) initially accepted the assessee's evidence, including affidavits and certificates, but the ITAT found that these did not sufficiently rebut the AO's findings.

3. Adequacy of Opportunity Provided to the Assessee:
The assessee argued that the AO did not provide a reasonable opportunity to be heard. However, the ITAT noted that the assessee had withdrawn the ground of inadequate opportunity during the quantum appeal before the CIT(A). The ITAT concluded that the AO had given sufficient opportunity to the assessee to establish the genuineness of the transactions.

4. Consideration of Additional Evidence in Penalty Proceedings:
The CIT(A) considered additional evidence such as affidavits and certificates, which were not adequately confronted to the AO. The ITAT criticized the CIT(A) for not recording findings with reference to the evidence on record and for ignoring the AO's findings. The ITAT emphasized that the penalty cannot be deleted based on unverified and self-serving documents.

Conclusion:
The ITAT restored the penalty of Rs. 4,22,772 imposed by the AO, concluding that the assessee failed to provide a satisfactory explanation for the loss claimed in transactions with A.R. Traders. The appeal of the Revenue was allowed.