2019 (4) TMI 673 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus purchases - estimated addition of 15% - HELD THAT - Quantum and penalty proceedings are separate and if in the penalty proceedings, it is found that the assessee has furnished all the evidences to substantiate its claim of not furnishing inaccurate particulars, no penalty is to be imposed even if the addition is being confirmed. In the instant case, the assessee is carrying on business at Jaipur as exporter and trader of precious and semi precious gems and stones from last many years. The entire sales are export sales and all realizations of sale proceeds are in the form of foreign currency through proper banking channels. For the purposes of exports, the assessee purchases goods from various dealers including above named JPK Trading (I) Pvt. Ltd and the same were exported outside India. In the course of this regular business activity the assessee inter alia purchased goods, namely precious and semi precious gems and stones from above named company JPK Trading (I) Pvt. Ltd. and to prove the genuineness of the purchases made from above named party the assessee furnished copy of purchases invoices, copy of bank statements copy of export invoices, Airways bills, bank advice in relation to realization of sale proceeds in foreign exchange, confirmation of supplier, TIN of supplier which is issued to a dealer doing business of purchase/sale issued by the Govt. of Rajasthan. It is clear from the documents so furnished by the assessee that the assessee has submitted all the documentary evidences to substantiate the purchases so made, under these facts and circumstances, merely making of estimated addition of 15% will not attract the penalty U/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961 based on estimated additions to income.

Analysis:
1. The appeal was filed against the order of the ld.CIT(A)-I, Jaipur for the A.Y. 2007-08 regarding the imposition of penalty under Section 271(1)(c) of the Act. The assessee contested the penalty on grounds of arbitrariness and excessive imposition.
2. The assessee, engaged in trading and export of stones, faced an addition to income during assessment proceedings. The AO estimated 25% of alleged bogus purchases, later reduced to 15% by the ld. CIT(A), who also upheld the penalty under Section 271(1)(c).
3. The assessee cited a similar case where the Tribunal deleted the penalty for a comparable estimated addition. The contention was that the AO estimated profit by rejecting the books of account.
4. The Revenue argued for upholding the penalty based on the confirmed 15% addition on bogus purchases.
5. The Tribunal examined all contentions, reviewed lower authorities' orders, and considered judicial precedents. The assessee provided extensive documentary evidence to substantiate purchases, including invoices, bank statements, export documents, and supplier confirmations. The Tribunal noted that the penalty and quantum proceedings are distinct.
6. Referring to a relevant case law, the Tribunal emphasized that the addition should be specific and based on unverifiable purchases to justify a penalty under Section 271(1)(c). The Tribunal also relied on a High Court decision regarding the rejection of returned income and the substitution of estimated figures.
7. Ultimately, the Tribunal found no merit in imposing the penalty under Section 271(1)(c) as the assessee had provided substantial evidence to support purchases. The AO was directed to delete the penalty.
8. Consequently, the appeal of the assessee was allowed, and the penalty was revoked.

This detailed analysis of the legal judgment highlights the key arguments, precedents, and considerations that led to the decision to delete the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.