2020 (8) TMI 192 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance of bogus purchases by applying the profit rate - furnishing of inaccurate particulars of income and concealment of particulars of income - HELD THAT - We could not find anything recorded by the Assessing Officer that there is actual concealment of income by the assessee. Merely suspicion or doubt cannot be the basis for levying penalty under section 271(1)(c) of the Act of the Act either for concealment of particulars of income or for furnishing of inaccurate particulars of income as the case may be. Once there is no reason to disbelieve the sales made by the assessee and particularly when part of material is recorded in stock, it cannot be justified that the estimation made by the Assessing Officer warrants penalty under section 271(1)(c) - It can be a case of addition or disallowance of bogus purchases on estimate basis but it cannot be a case of levy of penalty for concealment of income under section 271(1)(c) - In the present case the entire purchase totaling to ₹89,044/- are treated as bogus purchases and addition is only to the extent of disallowance of depreciation at the rate of 60% on the fixed asset of ₹62,500/- as ₹37,560/-. Thereby, the total addition on account of bogus purchases and disallowance of deprecation of bogus purchases comes to ₹1,26,604/-. - Penalty deleted - Decided in favour of assessee.

Summary

Issues:
- Whether the CIT(A) was right in deleting the penalty under section 271(1)(c) for furnishing inaccurate particulars of income and concealment of particulars of income?
- Whether the penalty was correctly imposed by the Assessing Officer?
- Whether the penalty was justified under the circumstances of the case?

Analysis:
1. The appeal by the Revenue challenges the CIT(A)'s decision to delete the penalty under section 271(1)(c) for inaccurate particulars of income and concealment of income related to the disallowance of bogus purchases. The Revenue raised concerns regarding the understatement of income by the assessee and the lack of bona fide explanation for the claims made.

2. The amount involved in the penalty was below the prescribed limit for appeal by the Revenue, as per circular issued by the Central Board of Direct Taxes. The disallowance of bogus purchases and depreciation on assets by the Assessing Officer led to the penalty under section 271(1)(c). However, the assessee provided evidence of genuine purchases with complete bills and payment details, challenging the basis of the disallowance.

3. The Tribunal noted that the disallowance was made on an estimated basis, and there was no concrete evidence of actual concealment of income by the assessee. Mere suspicion or doubt was deemed insufficient for imposing a penalty under section 271(1)(c). The Tribunal emphasized that while additions or disallowances could be made on an estimate basis, it did not warrant a penalty for concealment of income in this case.

4. Referring to relevant case law, including the decision of the Hon'ble Bombay High Court, the Tribunal concluded that the CIT(A) rightly deleted the penalty. The Tribunal disagreed with the CIT(A)'s reasoning but upheld the decision based on legal precedents and the absence of substantial questions of law. The Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty by the CIT(A).

5. In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) based on the lack of substantial evidence of concealment of income or furnishing inaccurate particulars. The Tribunal's analysis focused on the legal requirements for imposing penalties and the specific circumstances of the case, ultimately leading to the dismissal of the Revenue's appeal.