2017 (11) TMI 1928 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus purchases - HELD THAT - There is no justification to levy the penalty under section 271(1)(c) of the Act, inasmuch as, it is a case of failure of the assessee to substantiate an entry of purchase in the books of account and it is not a case where some falsity or untruth has been established. In fact, the AO proceeded to add to the returned income only the amount of profit element because of the fact that the sales effected by the assessee corresponding to the impugned purchases were accepted. Be that as it may, it is a case of mere non-substantiation of an expenditure and not a case where falsity has been proved to the hilt. Even if one has to go by the manner in which the addition has been made by the AO by resorting to estimating the profit element no penalty is sustainable. Therefore, in this view of the matter, we set-aside the order of the CIT(A) and direct the AO to delete the penalty - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The appeal pertains to the assessment year 2009-10 and challenges the penalty imposed under section 271(1)(c) of the Act amounting to ?18,006. The dispute arose from purchases made by the assessee from four parties totaling to ?4,66,133, which were deemed doubtful based on information from the Maharashtra Sales Tax Department. The Assessing Officer treated these purchases as bogus, adding a profit element of ?58,266 to the returned income. Subsequently, a penalty of ?18,006 was imposed under section 271(1)(c) for alleged income concealment.

The assessee contended that the penalty imposition was not automatic, as the purchase transactions were well-documented and payments were made through banking channels. The Tribunal noted that the Assessing Officer added only the profit element to the returned income, indicating a failure to substantiate the purchase entry rather than establishing falsity. As the sales corresponding to the purchases were accepted, the Tribunal deemed it a case of non-substantiation rather than deliberate falsehood. Given the manner of estimation used by the Assessing Officer, the Tribunal found no basis for sustaining the penalty under section 271(1)(c) and directed its deletion.

In conclusion, the Tribunal allowed the appeal, setting aside the order of the CIT(A) and directing the Assessing Officer to delete the penalty of ?18,006 imposed under section 271(1)(c) of the Act. The judgment was pronounced on 10/11/2017.