2024 (5) TMI 1396 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition made of bogus purchases - CIT (A) restricted addition to 12.5% of bogus purchase - Information received from Maharashtra Sales Tax Department by DGIT investigation Mumbai which was in turn forwarded to the AO wherein five parties were found to be hawala parties providing accommodation bills. HELD THAT - As it is apparent that the addition made in the hands of the assessee remains on estimated basis. Though it cannot be the case that whenever addition is made on the estimate basis penalty cannot be levied. However, when the assessee has furnished all the relevant information, what is the information that the assessee has furnished inaccurately is the question. It cannot be said that assessee was in known of things at the time of recording of these purchase that same are bogus and furnished these information which was inaccurate to the AO - The several decision of the co-ordinate Bench in this case clearly shows that in such case the penalty u/s 271(1)(c) of the Act could not have been levied. Thus as relying on Krishi Tyre Retreading and Rubber Industries 2014 (2) TMI 21 - RAJASTHAN HIGH COURT the appellate orders of the ld. CIT (A) deleting the penalty u/s 271 (1) (c) of The Act , are confirmed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Restriction of penalty u/s 271(1)(c) on bogus purchases.
2. Consideration of information from external agencies about bogus purchases.
3. Failure to produce evidence to prove genuineness of transactions.

Summary:

Issue 1: Restriction of penalty u/s 271(1)(c) on bogus purchases
The learned CIT (A) restricted the penalty u/s 271(1)(c) of the I.T. Act to 12.5% of the bogus purchases amounting to Rs. 61,77,214/-, following the order of the co-ordinate Bench in the case of Poonam K Prajapati. It was held that when the addition is made on account of bogus purchases on an adhoc estimated basis, the penalty cannot survive. The ITAT upheld this view, confirming that the penalty could not be levied as the addition was made on an estimated basis.

Issue 2: Consideration of information from external agencies about bogus purchases
The Assessing Officer (AO) relied on information from the DGIT(Inv), Mumbai, which was based on data from the Sales-Tax Department, Maharashtra, identifying certain parties as bogus hawala entry providers. The AO made a 100% addition of Rs. 61,77,214/- for purchases from these parties. The CIT (A) later restricted this addition to 12.5%, resulting in a net addition of Rs. 7,72,152/-.

Issue 3: Failure to produce evidence to prove genuineness of transactions
The assessee failed to produce the parties or provide new addresses for verification. However, the assessee submitted ledger accounts, purchase bills, and bank statements. The AO issued a show cause notice for rejection of the books of account and subsequently made the addition and initiated penalty proceedings for furnishing inaccurate particulars of income. The ITAT noted that the assessee had furnished all available information and that the penalty could not be sustained as the addition was made on an estimated basis.

Conclusion:
The ITAT confirmed the order of the CIT (A) deleting the penalty u/s 271(1)(c) of the Act, as the addition was based on an estimate and the assessee had provided all available information. The appeal of the AO was dismissed. The judgment also referenced decisions from the Honourable Gujarat High Court and Honourable Rajasthan High Court, supporting the view that penalty under section 271(1)(c) could not be levied on estimated additions.