2012 (11) TMI 157 - AT - Income Tax

Penalty u/s. 271(1)(c) - unexplained expenditure on purchase of goods - Held that - In the quantum appeal, the Hon ble ITAT on the basis of quantitative details of stock submitted by the assessee held that the contention of the assessee that the goods were in fact purchased cannot be discarded but might have been purchased from some other party than from those shown in the books. In view of these facts, the Hon ble Tribunal restricted the addition to 15% of the purchases. Thus the addition has been made on the basis of estimate. As decided in CIT Versus SANGRUR VANASPATI MILLS LTD. 2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT provisions of Sec. 271(1)(c) are not attracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein, thus in the present case also no penalty will be levied - in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) for furnishing inaccurate particulars of income.

Detailed Analysis:

1. Background and Assessment Process:
The appellant, a company engaged in trading finished fabrics, filed its income tax return for the assessment year 2005-06. The Assessing Officer (A.O.) rejected the book results under section 145(3) and made significant additions to the total income. The additions were related to the purchase of finished fabrics, which the A.O. considered as unexplained income. The Commissioner of Income Tax (Appeals) [CIT (A)] upheld the additions made by the A.O. and initiated a penalty of Rs. 14,89,149 under section 271(1)(c).

2. Appellant's Argument:
The appellant contended that the additions were made on an estimated basis, and therefore, no penalty should be levied under section 271(1)(c). The appellant relied on previous decisions to support this argument, emphasizing that the additions were not based on concrete evidence but on estimates. The appellant also highlighted that the Income Tax Appellate Tribunal (ITAT) had restricted the disallowance to 12.5% of the purchases in a similar case, indicating that penalties should not apply in cases based on estimates.

3. Revenue's Counter-Argument:
The Revenue argued that the appellant had introduced fake bills of purchases to reduce profits, failing to prove the genuineness of the purchases. The Revenue pointed out discrepancies in the appellant's documentation and transactions, indicating potential malpractice. The Revenue emphasized that the A.O. was justified in levying the penalty based on the factual position and the lack of supporting evidence provided by the appellant.

4. Tribunal's Decision:
After considering the arguments from both sides and reviewing the case details, the Tribunal found that the A.O. had added the expenditure on purchase of goods based on estimates. The Tribunal noted that the ITAT had previously restricted additions in similar cases where estimates were involved. Relying on the decision in the case of CIT vs. Sangrur Vanaspati Mills Ltd., the Tribunal concluded that penalties under section 271(1)(c) are not applicable when income is assessed on an estimated basis. Therefore, the Tribunal deleted the penalty levied by the A.O. and allowed the appellant's appeal.

5. Conclusion:
The Tribunal's decision favored the appellant, emphasizing that penalties should not be imposed when additions are made on an estimated basis without concrete evidence of malpractice or intentional wrongdoing. The case highlights the importance of substantiating claims and transactions to avoid penalties for inaccurate particulars of income.

This detailed analysis of the legal judgment provides a comprehensive overview of the issues involved, the arguments presented by both parties, and the Tribunal's decision based on relevant legal precedents and considerations.