2021 (8) TMI 845 - AT - Income Tax

Penalty u/s. 271(1)(c) - additions made on account of bogus purchases - HELD THAT - AO has made addition on the basis of estimated addition and consequently imposed penalty under section 271(1)(c) of the Act. In our considered opinion, and keeping in view the consistency maintained by this Tribunal in plethora of cases that the provisions of section 271(1)(c) of the Act are not attracted to cases where income of an assessee is assessed on estimate basis and addition is made therein on that basis. In the present case also, the facts are similar and hence no penalty ought to have been levied by the Assessing Officer. Even otherwise also, the Revenue has not adduced any cogent material before us to demonstrate that the order passed by the learned CIT(A) deleting the penalty imposed by the Assessing Officer under section 271(1)(c) of the Act is void ab initio. - Decided against revenue.

Summary

Issues involved:
1. Whether penalty under section 271(1)(c) of the Income Tax Act was correctly deleted by the learned CIT(A)?
2. Whether the Assessing Officer was justified in making additions on the basis of estimated purchases and imposing penalty under section 271(1)(c) of the Act?
3. Whether the order passed by the learned CIT(A) deleting the penalty imposed by the Assessing Officer was legally sound?

Issue 1: The appeal was filed by the Revenue challenging the deletion of penalty of ?1,18,200 under section 271(1)(c) of the Income Tax Act for the assessment year 2011-12. The Assessing Officer had imposed the penalty based on quantum additions made on account of bogus purchases. The CIT(A) deleted the penalty, stating that the AO cannot impose penalty based on estimated additions. The CIT(A) observed that the purchases were duly shown in the books of account, but the party from whom the purchases were made could not be produced. Citing various court decisions, the CIT(A) concluded that no penalty is leviable when additions are made on estimation basis without conclusive proof of bogus purchases.

Issue 2: The Assessing Officer made additions on the basis of estimated purchases and initiated penalty proceedings under section 271(1)(c) separately. The Revenue contended that the corresponding sales were not proven to have been made, indicating that the suspected hawala parties were non-existent. However, the Tribunal held that penalties under section 271(1)(c) are not applicable when income is assessed on an estimate basis. The Tribunal found no legal infirmity in the CIT(A)'s decision to delete the penalty, as the Revenue failed to provide substantial evidence to challenge it.

Issue 3: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order of deleting the penalty under section 271(1)(c) of the Act. The Tribunal found no legal basis to interfere with the CIT(A)'s decision, as penalties are not warranted in cases where income assessments are based on estimates. The Tribunal concluded that the Revenue did not present sufficient evidence to contest the deletion of the penalty, affirming the legality of the CIT(A)'s order.

In summary, the Tribunal upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) of the Income Tax Act, emphasizing that penalties are not applicable when additions are made on an estimate basis without conclusive evidence of wrongdoing. The Revenue's appeal challenging the deletion of the penalty was dismissed due to lack of substantial evidence to support their case.