2024 (1) TMI 209 - AT - Income Tax

Penalty proceedings u/s. 271(1)(c) - addition made by applying GP rate of alleged bogus purchases - As argued AO has not specified the charge under which limb penalty is to be levied in the notice u/s. 274 r.w.s. 271(1)(c) - HELD THAT - We find that before the ld. AO not only during the course of assessment proceedings but also during the penalty proceedings assessee had submitted the explanation that all the purchases were from the books and payments have been made through account payee cheques and ultimately addition has been sustained on purely adhoc estimate of gross profit rate. From the perusal of the records, it is seen that the assessee has submitted the quantitative details of purchases alongwith stock register entry and corresponding export sales which was also verified from the customer appraisal report. Once, the source of payment of purchases have been made through books of accounts and through account payee cheques and there is corresponding sales, then merely because some adhoc GP rate has been applied on such alleged bogus purchases to factor in suppression of alleged gross profit, no penalty can be levied for furnishing of inaccurate particulars of income or concealing particulars of income, which ld. AO has held in his penalty order that penalty is being levied under both the limbs, which itself shows his satisfaction is vague. Accordingly, penalty levied on such adhoc estimate cannot be sustained in the present case and hence same is deleted. Appeal of the assessee is allowed.

Summary

Issues Involved:
The judgment involves penalty proceedings under section 271(1)(c) for the Assessment Year 2007-08, specifically concerning the addition made by applying GP rate on alleged bogus purchases and the lack of specification of the charge under which limb penalty is to be levied.

Details of the Judgment:

Issue 1: Addition made on alleged bogus purchases
The assessee was found taking accommodation entry of bogus purchases from four parties based on information from Investigation. The case was reopened under section 147, and the assessee submitted details of purchases, stock register entry, and cheque payments. The Assessing Officer treated the entire purchases as unexplained, but in the first appeal, the addition was reduced by restricting it to 3% of the GP rate. The penalty was levied on the final addition sustained, but the Tribunal found that the purchases were from books, payments were made through account payee cheques, and there were corresponding sales. The Tribunal concluded that penalty cannot be levied for furnishing inaccurate particulars of income or concealing income based on an adhoc estimate of GP rate. The penalty was deleted as the satisfaction of the Assessing Officer was deemed vague.

Issue 2: Lack of specification of penalty charge
The additional ground raised by the assessee regarding the lack of specification of the charge under which limb penalty is to be levied was deemed academic after the penalty was deleted. The Tribunal found that since the penalty was deleted, the legal issue raised in the additional ground became irrelevant.

In conclusion, the appeal of the assessee was allowed, and the penalty levied under section 271(1)(c) was deleted. The judgment was pronounced on 31st July 2023.