2018 (1) TMI 1422 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition @25% of unverifiable purchases while completing the assessment u/s 143(3) - Held that - There is no definite finding by the AO that the assessee has inflated the purchase to the extent of 25% but it was only estimation of the AO to make addition which was subsequently restricted by this Tribunal to 15% of unverifiable purchase. Thus even the addition in quantum proceedings attained the finality it is not based on the finding that the assessee has inflated the purchases and suppressed the income or claim of the assessee was absolutely bogus. AO has only doubted the purchases from certain parties and made the addition only to the extent of 25% of purchases made from such parties instead of disallowing entire purchases from those parties. When the AO has not given any finding of bogus purchases then the disallowance made by the AO is only based on estimation which was restricted by this Tribunal as reasonable estimated. Accordingly, the issue of levy of penalty u/s 271(1)(c) of such addition is now covered by case of CIT vs. Mahendra Singh Khedla 2012 (3) TMI 568 - RAJASTHAN HIGH COURT . - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 by CIT (A).
2. Assessment of penalty based on estimation without a finding of actual inflation of claims.
3. Application of the decision in the case of CIT vs. Mahendra Singh Khedla to the present case.

Analysis:
1. The appeal before the Appellate Tribunal ITAT Jaipur challenged the penalty order passed under section 271(1)(c) of the Income Tax Act for the Assessment Year 2007-08, confirming a penalty of ?5,50,000 imposed by the Assessing Officer. The appellant, engaged in the business of manufacturing jewelry and handicrafts, contested the penalty on legal grounds, seeking relief by quashing the penalty.

2. The Assessing Officer had added 25% of unverifiable purchases during assessment, which was later reduced to 15% by the Tribunal in quantum proceedings. Subsequently, the penalty under section 271(1)(c) was imposed by the Assessing Officer. The CIT (A) upheld the penalty but modified it in line with the relief granted by the Tribunal in the quantum proceedings, leading to the present appeal.

3. The appellant argued that the penalty was unjustified as it was based on an estimation by the Assessing Officer without concrete evidence of inflated claims. Citing the decision in the case of CIT vs. Mahendra Singh Khedla, the appellant contended that penalties cannot be levied when income is assessed on an estimated basis. The Department, however, supported the penalty, stating that the addition was confirmed by the Tribunal and fell under section 271(1)(c).

4. The Tribunal analyzed the submissions and the material on record, noting that the addition of 25% was based on estimation without a definitive finding of inflated purchases. As the Tribunal had restricted the addition to 15% in the quantum proceedings, it concluded that the penalty was not justified. Referring to the decision in the case of CIT vs. Mahendra Singh Khedla, the Tribunal highlighted that penalties based on estimations without concrete evidence of concealment or inaccurate particulars cannot be levied.

5. Consequently, the Tribunal, following the precedent set by the decision in the mentioned case, deleted the penalty levied under section 271(1)(c) against the appellant. The appeal was allowed, and the penalty was set aside based on the lack of concrete evidence supporting the penalty imposition.

In conclusion, the Appellate Tribunal ITAT Jaipur allowed the appeal, deleting the penalty imposed under section 271(1)(c) based on estimations without conclusive evidence of concealment or inaccurate particulars, in line with the legal principles established in the case of CIT vs. Mahendra Singh Khedla.