2023 (10) TMI 1316 - AT - Income Tax

Penalty u/s 271(1) - estimation of income on bogus purchases - HELD THAT - Disallowance in the instant case is on estimated basis on the presumption that expenditure incurred is excessive having regard to nature and business activity of assessee and also having regard to the non-availability of cogent evidences to support purchases. Significantly, the assessee, in the instant case, has inter alia pointed out that the purchases do not belong to the Assessment Year 2012-13 in question but the amount outstanding against the respective suppliers are opening balances during the year therefore, no expenditure has been incurred towards bogus purchases in the year. We observe that on this point alone, the imposition of penalty towards disallowance of bogus purchases affected during the year is unsustainable in law. Also see Vijay Proteins Ltd. 2015 (1) TMI 828 - GUJARAT HIGH COURT and Sanjay Oil Cake Industries 2008 (3) TMI 323 - GUJARAT HIGH COURT wherein the penalty imposed u/s 271(1)(c) was struck down in similar circumstances of estimated disallowance towards bogus purchases. Decided in favour of assessee.

Summary

Issues involved:
The appeal against the penalty order under Section 271(1)(c) of the Income Tax Act, 1961 concerning AY 2012-13 based on estimated additions towards bogus purchases.

Summary:
The appeal was filed by the Assessee against the penalty order imposed by the Assessing Officer for alleged concealment of income due to estimated additions towards bogus purchases. The Assessee claimed to have submitted documentary evidence during re-assessment proceedings to support the purchases, but the Assessing Officer estimated 12% of the purchases as unexplained, leading to a penalty of Rs. 1,17,271. The first appeal to the CIT(A) did not provide any relief, resulting in the current appeal.

Upon careful consideration, the Tribunal noted that for penalty under Section 271(1)(c) to be imposed, there must be concealment or furnishing of inaccurate particulars of income. In this case, the disallowance was made on an estimated basis without sufficient evidence to support the purchases. The Assessee argued that the purchases did not pertain to the relevant Assessment Year and were actually opening balances, rendering the penalty unsustainable. Citing relevant case law, the Tribunal found the penalty to be unjustified and unsustainable in law.

In light of the above, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to reverse the penalty imposed. Consequently, the appeal of the Assessee was allowed.