2019 (1) TMI 466 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition on account of unverifiable purchases @ 25% - Held that - There is no dispute that while completing the assessment U/s 143(3) of the Act, the Assessing Officer rejected the books of account of the assessee U/s 145(3) of the Act and consequently the income in respect of unverifiable/bogus purchases was estimated @ 25% of such purchases. The said addition made by AO was restricted by the CIT(A) to 7% to those purchases as against 25% addition made by the Assessing Officer. Thus, it is clear that the addition sustained by the ld. CIT(A) is nothing but is based on the estimation of income by taking 7% of such unverifiable purchases. The Coordinate Bench of this Tribunal have taken a consistent view on this issue of levy of penalty against the addition made by the Assessing Officer by taking the income @ 25% of the unverifiable purchases holding that the penalty levied against the addition based on estimation of income is not sustainable In view of the decision of the CIT Vs Mahendra Singh Khedla (2012 (3) TMI 568 - RAJASTHAN HIGH COURT), the levy of penalty against the addition made on the basis of estimation of income by taking 25% of the unverifiable purchases which was reduced in the said case to 15% was found to be not sustainable. This view has been consistently taken even in other decisions - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the penalty was imposed for concealment of income or furnishing inaccurate particulars of income.

Issue 1: Confirmation of Penalty
The appeal challenged the penalty order passed under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2008-09. The Assessing Officer had initially made an addition on account of unverifiable purchases, which was later restricted by the CIT(A) to a lower amount. Despite the reduction in the addition, the penalty was levied at 100% of the tax sought to be evaded. The assessee contended that the penalty was unjustified as it was based on estimation and not on concealment of income or furnishing inaccurate particulars. The assessee cited relevant case laws and decisions of the Tribunal to support this argument.

Issue 2: Nature of Addition and Basis for Penalty
The Assessing Officer had rejected the books of account of the assessee and estimated the income by adding 25% of unverifiable purchases. However, the CIT(A) reduced this addition to 7% of such purchases. The Tribunal noted that the addition was based on estimation and not on concrete evidence of concealment or furnishing inaccurate particulars. Citing precedents and the decision of the Jurisdictional High Court, the Tribunal concluded that the penalty based on an estimated addition was not sustainable. The Tribunal emphasized the importance of factual findings and consistency in such cases, ultimately deleting the penalty under section 271(1)(c) of the Act.

In conclusion, the Tribunal allowed the appeal of the assessee, highlighting the importance of factual evidence and consistency in determining penalties under the Income Tax Act. The decision underscored that penalties based solely on estimations, without clear evidence of concealment or inaccuracies, are not justified.