2021 (9) TMI 1024 - AT - Income Tax

Penalty u/s 271(c) - Estimation of income for purchases purchases - CIT-A deleted the addition - HELD THAT - Undisputedly, based on certain information received from Sales-tax authorities, the assessing officer has treated certain purchases as non genuine. However, he has accepted that the assessee has effected the corresponding sales, meaning thereby, the goods might have been purchased from unverified sources - AO instead of disallowing the entire purchases had restricted the disallowance to the profit element embedded in such purchases by estimating at 12.5%. The doubt, if any, is with regard to the source of purchases. Inability of the assessee to prove the source of purchase could be due to various factors. However, that by itself, cannot lead to the conclusion that the assessee has furnished inaccurate particulars of income so as to visit him with penalty under section 271(c) of the Act. More so, when the additions have been made purely on estimate basis.- No infirmity in the decision of learned Commissioner (Appeals) in deleting the penalty imposed under section 271(1)(c) - Decided against revenue.

Summary

Issues:
Appeals against penalty under section 271(c) of the Income Tax Act for assessment years 2010-11, 2011-12, and 2009-10.

Analysis:
The appeals were in relation to penalty imposed under section 271(c) of the Income Tax Act for three assessment years. The assessing officer reopened the assessments based on information regarding non-genuine purchases. The assessing officer, while accepting the sales made by the assessee, estimated the profit element embedded in the alleged non-genuine purchases at 12.5%. The Commissioner (Appeals) further reduced these additions based on previous Tribunal decisions. Subsequently, penalties were imposed by the assessing officer, which were challenged by the assessee before the Commissioner (Appeals).

The Commissioner (Appeals) deleted the penalties in all the assessment years, concluding that the assessee did not furnish inaccurate particulars of income under section 271(1)(c) of the Act. The Tribunal observed that the purchases were made by the assessee, and any doubt regarding the source of purchases did not automatically imply inaccurate particulars of income. The Tribunal noted that the additions were based on estimation and the inability to prove the source of purchase could be due to various factors, not necessarily indicating deliberate inaccuracies.

The Tribunal upheld the decision of the Commissioner (Appeals) and dismissed the appeals, stating that the assessee's failure to prove the source of purchases did not warrant penalty under section 271(c) of the Act. The Tribunal emphasized that the additions were made on an estimate basis and the mere doubt about the source of purchases did not establish inaccurate particulars of income. Therefore, the penalties imposed by the assessing officer were deemed unwarranted, and the appeals were dismissed accordingly.