2020 (10) TMI 293 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus purchases - HELD THAT - A.O had declined to accept the authenticity of the purchase transactions under consideration, for the reason that the documentary evidence produced by the assessee did not substantiate the authenticity of the same to the hilt. We have deliberated at length on the issue under consideration, and find, that the addition made by the A.O is merely backed by an unproved claim of the assessee, and not a claim which was disproved to the hilt on the basis of irrefutable documentary evidence by the revenue - unproved purchases would justify an addition in the hands of the assessee, however, merely on the said standalone basis no penalty u/s 271(1)(c) could have been validly imposed. In the case before us, as the revenue had failed to disprove to the hilt on the basis of clinching documentary evidence, the authenticity of the claim of the assessee of having made purchases from the aforementioned parties, therefore, merely on the basis of the unproved claim of purchases no penalty under Sec. 271(1)(C) could have been validly imposed on the assessee. Restriction of the disallowance of entire purchases made by the A.O to 30% of the aggregate value of such purchases by the CIT(A), which thereafter was substituted by 10% by the Tribunal, speaks for itself that the disallowance sustained in the hands of the assessee is merely backed by a process of estimation and not based on any concrete evidence. No clinching material had been brought on record by the revenue which could disprove the authenticity of the purchases claimed by the assessee to have been made from the aforementioned parties, no penalty u/s 271(1)(c) could have thus validly been imposed upon him. We thus not being able to persuade ourselves to subscribe to the observations of the lower authorities therein vacate the penalty imposed by the A.O u/s 271(1)(c). - Decided in favour of assessee.

Summary

Issues:
- Challenge against penalty under Sec. 271(1)(c) for alleged bogus purchases
- Allegation of breach of principles of natural justice in penalty imposition
- Imposition of penalty on both charges challenged

Analysis:
1. The appeal was against the penalty imposed under Sec. 271(1)(c) for alleged bogus purchases. The appellant contended that no concealment or inaccurate particulars were involved as all relevant details were disclosed. The AO disallowed the purchases of ?23,93,611, considering them bogus, as the assessee failed to prove their authenticity with concrete evidence. The CIT(A) reduced the disallowance to 30% and later to 10% based on estimation. The Tribunal recalled its initial order and restricted the disallowance to 10%. Subsequently, the AO imposed a penalty of ?2,15,424, which the CIT(A) upheld but directed to re-compute in line with the reduced disallowance.

2. The appellant argued that the purchases were disallowed on an estimate basis without concrete evidence to disprove their genuineness, which should not warrant a penalty under Sec. 271(1)(c). Conversely, the Departmental Representative supported the lower authorities' decisions, emphasizing the admission of bogus purchases by the assessee.

3. The Tribunal found that the purchases were deemed bogus due to insufficient proof by the assessee, but the revenue failed to disprove their authenticity conclusively. Citing legal precedents, the Tribunal held that penalty under Sec. 271(1)(c) cannot be imposed solely on unproved claims, especially when documentary evidence remains unchallenged. As the disallowance was based on estimation rather than concrete evidence, the Tribunal vacated the penalty upheld by the CIT(A).

4. Consequently, the Tribunal allowed the appeal, vacating the penalty imposed under Sec. 271(1)(c). The decision was pronounced in accordance with the Income Tax (Appellate Tribunal) Rules, 1962.