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2015 (2) TMI 941 - AT - Income TaxPenalty 271(1)(c) - Held that - The assessee s contention that the entire purchases as had been made had been recorded in the primary and final books, such as stock and ledger books have not been negated or controverted by the revenue authorities and even by the DR. The assessee had also shown the evidence of movement of goods in and out of the warehouse and goods transport receipts. These evidences bore the character of bonafide conduct of business by the assessee. The revenue authorities therefore, clearly erred in holding the issue against the assessee, even on an assumption. Whether or not a person has acted bona fide reflects the state of his mind in respect of his conduct, and, therefore, the assessee has his inherent limitations in establishing this aspect of the manner. It was in this regard that the higher judicial fora has tried to keep mens rea outside the perimeters for sustaining the penalty under normal business conduct or explanations of the assessee. All that the assessee can do, is to explain the circumstances in which he has acted in a particular manner and set out the related facts. This gets proved in favour of the assessee, when the AO writes in the assessment order, on careful perusal of all submissions, it cannot be denied that purchases have not been made . Hence The assessee s explanation regarding bona fides of claim did not suffer from any apparent in consistencies or factual errors and it was quite in line with human probabilities and market trends, therefore, there was no good reason to reject the explanation and proceed to initiate and levy of penalty under section 271(1)(c). Thus explaining as to where the penalty is to be levied and to be deleted, we are of the view that the years under consideration, the revenue authorities erred in initiating penalty proceeding and levying of penalty. - Decided in favour of assessee.
Issues Involved:
1. Levy of penalty under Section 271(1)(c) for Assessment Years (AY) 2009-10 and 2010-11. 2. Allegation of furnishing inaccurate particulars of income. 3. Reassessment proceedings under Section 148. 4. Survey operations and subsequent declaration of income. 5. Acceptance of book results and stock records by the Assessing Officer (AO). 6. Cross-examination of parties providing bogus bills. 7. Application of peak credit theory. 8. Burden of proof in penalty proceedings. 9. Legal precedents and their applicability to the case. Issue-wise Detailed Analysis: 1. Levy of Penalty under Section 271(1)(c): The primary issue revolves around the levy of penalty of Rs. 11,80,489/- and Rs. 13,43,019/- under Section 271(1)(c) for AY 2009-10 and 2010-11, respectively. The penalty was imposed for allegedly furnishing inaccurate particulars of income. The assessee had declared additional income during survey operations and included it in the return filed under Section 148. 2. Allegation of Furnishing Inaccurate Particulars of Income: The AO alleged that the assessee had filed inaccurate particulars of income by claiming bogus purchases. The assessee argued that the purchases were genuine and duly recorded in stock registers and sales tax records. The CIT(A) upheld the penalty, stating that the assessee failed to prove the genuineness of the purchases and concealed the identity of actual suppliers. 3. Reassessment Proceedings under Section 148: The reassessment proceedings were initiated based on the survey operations conducted on 22.11.2012. The assessee filed returns in response to notices under Section 148, declaring additional income. The AO accepted the returns with minor additions but initiated penalty proceedings on the declared additional income. 4. Survey Operations and Subsequent Declaration of Income: During the survey, the assessee declared Rs. 34,73,047/- for AY 2009-10 and Rs. 43,46,339/- for AY 2010-11 as peak of purchases under scan. The AO accepted these declarations but imposed penalties for furnishing inaccurate particulars of income. 5. Acceptance of Book Results and Stock Records by the AO: The AO accepted the book results and did not find any discrepancies in the assessee's books of accounts, stock registers, or sales records. The AO acknowledged that purchases were made and recorded, but questioned the source of purchases, alleging they were from bogus parties. 6. Cross-examination of Parties Providing Bogus Bills: The assessee was not given the opportunity to cross-examine all parties providing bogus bills. However, cross-examination of two parties confirmed that no actual purchases were made from them. The assessee failed to provide supporting documents for transportation and physical delivery of goods from these parties. 7. Application of Peak Credit Theory: The AO applied the peak credit theory to determine the maximum amount of income that could be added. The assessee argued that the peak credit method does not reflect actual income and should not be the basis for penalty. The CIT(A) rejected this argument, stating that the peak credit represents the concealed income. 8. Burden of Proof in Penalty Proceedings: Penalty proceedings are quasi-criminal, and the burden of proof lies on the Department to establish that the assessee acted with intent to defraud the revenue. The CIT(A) observed that the AO did not provide specific evidence of mala fide intent or concealment of income by the assessee. 9. Legal Precedents and Their Applicability: The assessee relied on several legal precedents, including decisions from the Supreme Court and various High Courts, to argue against the levy of penalty. The CIT(A) and ITAT analyzed these precedents and found them applicable to the case, leading to the conclusion that penalty under Section 271(1)(c) was not warranted. Conclusion: The ITAT concluded that the revenue authorities erred in initiating penalty proceedings and levying penalties under Section 271(1)(c). The tribunal noted that the AO accepted the book results and the assessee's declarations, and there was no evidence of concealment or furnishing of inaccurate particulars of income. The ITAT set aside the orders of the CIT(A) and cancelled the penalties imposed by the AO for AY 2009-10 and 2010-11. The appeals filed by the assessee were allowed.
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