2021 (9) TMI 838 - AT - Income Tax

Penalty u/s 271(1)(c) - Estimation of income on bogus purchases - HELD THAT - AO has admitted that the assessee alternatively made purchases from the parties but only some profit element is not disclosed. AO by levying the penalty has nowhere proved purchases are bogus because the assessee has filed explanation that it had made purchases from registered dealers and also produced bills and vouchers along with payment details and the payments are made through account payee cheques - assessee is able to produce stock tally and also the transactions which are recorded in the book of accounts but could not be verified as the assessee was unable to produce documentary evidences of transportation of goods. In identical facts Nokia India Pvt. Ltd 2012 (7) TMI 35 - DELHI HIGH COURT has already decided the issue that in the case of estimation of bogus purchases penalty under section 271(1)(c) of the cannot be sustained - Decided against revenue.

Summary

Issues:
Appeal against deletion of penalty on estimated income in relation to profit on bogus purchases.

Analysis:
The appeal pertains to the deletion of penalty by CIT(A) regarding the levy of penalty on estimated income in connection with the estimation of profit on bogus purchases. The Revenue contended that the CIT(A) erred in deleting the penalty under section 271(1)(c) of the Income Tax Act, 1961. The AO had made an addition of the entire unproved purchase amount to the assessee's income, but the CIT(A) restricted the addition by estimating the profit at 11.59%, resulting in an addition of &8377;2,89,126. The AO initiated penalty proceedings under section 271(1)(c) based on this profit element. However, the CIT(A) deleted the penalty, stating that once an estimated addition was made, penalty could not be levied.

Upon reviewing the facts, it was noted that the AO had not proven the purchases were bogus, as the assessee provided explanations, produced bills, vouchers, and payment details, including account payee cheques. The assessee also maintained stock tally and recorded transactions in the books of accounts, although verification of transportation documents was lacking. Citing a similar case, the Delhi High Court had ruled that in instances of estimation of bogus purchases, penalties under section 271(1)(c) could not be sustained. Referring to the case of CIT vs. Nokia India Pvt. Ltd, it was highlighted that where a claim was partially disallowed based on an estimate, without a finding of falsity, penalties were not warranted.

Considering the precedents and the specific circumstances of the case, the Tribunal found no fault in the CIT(A)'s decision to delete the penalty. Consequently, the appeal of the Revenue was dismissed, affirming the order of the CIT(A) regarding the penalty deletion.

In conclusion, the Tribunal upheld the decision of the CIT(A) to delete the penalty imposed on the estimated income related to profit on bogus purchases, based on the principles established in relevant legal precedents. The judgment emphasized the necessity of concrete evidence to substantiate claims and highlighted the inapplicability of penalties in cases of estimations without clear proof of falsity.