2022 (2) TMI 819 - AT - Income Tax

Penalty u/s 271(1)(c) - undisclosed income - bogus purchase - HELD THAT - Assessee s business being in the nature of dairy and vegetable, the assessee would not be knowing that whether income from dairy firm was liable to tax or not - during the assessment proceedings, the assessee offered this as undisclosed income which has been confirmed in appeal before the ld.CIT(A) and the issue has attained finality. On examination of the facts on hand, it is apparent that the claim was neither mala fide nor false. It was under bona fide belief that the income generated out of purchase and sales of dairy products are exempt from the income tax. Assessee in the assessment proceedings disclosed this fact and offered the same to tax. In these circumstances, the assessee fulfilled both the conditions to be outside the purview of Explanation (1) to Section 271(1)(c). In the present case, on account of bogus purchase, the ld.CIT(A) has restricted addition to ₹ 11,88,357/- from ₹ 43,53,429/- on estimate basis. Such an estimation is made without any concrete material but on adhoc basis. Hon ble jurisdictional High Court in the case of CIT Vs. Valimkbhai H. Patel 2005 (7) TMI 35 - GUJARAT HIGH COURT has held that where addition has been made on estimation basis, no penalty under section 271(1)(c) could be made qua such addition.

Summary

Issues:
1. Penalty under section 271(1)(c) of the Income Tax Act, 1961 for undisclosed income from Malhar Dairy.
2. Penalty under section 271(1)(c) for bogus purchase addition.

Issue 1: Penalty for undisclosed income from Malhar Dairy:
The appeal was filed against the penalty confirmation under section 271(1)(c) for undisclosed income from Malhar Dairy. The assessee argued that the income was bona fide and disclosed during scrutiny proceedings, citing the case law of C.I.T & Anr. v/s. Manjunatha Cotton & Ginning factory. The Tribunal noted that the assessee believed the income from dairy farming was exempt from tax, leading to non-disclosure in the tax return. The Tribunal found the disclosure during assessment proceedings to be under bona fide belief, fulfilling conditions to be outside the purview of Explanation (1) to Section 271(1)(c) of the Act.

Issue 2: Penalty for bogus purchase addition:
The second issue concerned the penalty for the addition of &8377; 10,88,357/- related to bogus purchases. The Assessing Officer initially made an addition of &8377; 43,53,429/-, which was later restricted by the Ld.CIT(A) to &8377; 10,88,357/- on an estimated basis. The Tribunal observed that the estimation lacked concrete material and was made on an ad hoc basis. Citing the judgment in CIT Vs. Valimkbhai H. Patel, the Tribunal held that where additions are made on an estimation basis, no penalty under section 271(1)(c) could be levied. Following this precedent, the Tribunal reversed the order passed by the Ld.CIT(A) and canceled the penalty, allowing the appeal of the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee, canceling the penalties imposed under section 271(1)(c) for both the undisclosed income from Malhar Dairy and the bogus purchase addition. The decision was based on the bona fide belief of the assessee regarding tax exemptions and the lack of concrete material supporting the estimation of additions.