2020 (10) TMI 1149 - AT - Income Tax

Penalty levied u/s. 271 (1)(c) - bogus purchases - tribunal has directed the AO to restrict the addition on account of bogus purchases estimating at 12.5% of bogus purchases as income of the assessee - HELD THAT - As in own case 2020 (3) TMI 1258 - ITAT MUMBAI A.O has made disallowance of bogus purchases but has accepted the sales in the books of accounts, and whereas as directed the AO to disallow 12.5% of Bogus purchases. Where the addition is sustained on the estimated basis, no penalty u/s 271(1)(c) can be levied on the estimated income. Accordingly, we, considering the facts and principles of natural justice set aside the order of the CIT(A) and direct the A.O to delete the penalty and allow the grounds of appeal of the assessee.

Summary

Issues:
1. Levy of penalty under section 271(1)(c) for furnishing inaccurate particulars of income based on disallowed bogus purchases.

Analysis:
The appellant, engaged in trading, filed an appeal against the penalty imposed under section 271(1)(c) for inaccurate income particulars related to disallowed bogus purchases. The Assessing Officer (A.O) received information indicating the appellant's involvement in bogus purchase transactions. The A.O issued notices and ultimately made additions to the income based on estimated figures. Subsequently, a penalty under section 271(1)(c) was levied on the disputed amount. The CIT(A) upheld the penalty, leading to the appellant's appeal to the Tribunal.

During the proceedings, the appellant argued that the CIT(A) erred in dismissing the appeal, emphasizing that the Tribunal had directed the A.O to restrict the addition related to bogus purchases to 12.5% of the total. The appellant contended that since the estimated income was accepted in the quantum appeal, the penalty on the estimated income was unjustified. On the other hand, the Departmental Representative (DR) supported the lower authorities' orders.

After considering the submissions and evidence, the Tribunal focused on the key issue of whether a penalty under section 271(1)(c) could be levied on estimated income. The Tribunal noted that the A.O had accepted sales in the books but disallowed a portion of the purchases. Referring to a previous Tribunal order, the Tribunal concluded that when additions are sustained on an estimated basis, levying a penalty on such estimated income is not warranted under section 271(1)(c). Therefore, the Tribunal set aside the CIT(A)'s decision, directing the A.O to delete the penalty and allowing the appellant's appeal.

In conclusion, the Tribunal allowed the appeal, emphasizing that penalties under section 271(1)(c) cannot be imposed on estimated income where additions are made based on estimates. The decision highlighted the importance of adhering to principles of natural justice and considering the facts of the case before levying penalties based on estimated figures.