2025 (5) TMI 866 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - case was reopened for reassessment u/s 147 and the addition resulted subsequently on account of bogus purchases and gross profit was estimated @ 12.5% and the addition was thus made on estimation basis - HELD THAT - We are not convinced by the conclusion of the Ld. AO which has been confirmed by the CIT(A) that when the addition was made on the estimation basis it would fall within the mischief of Sec. 271(1)(c) of the Act making it a case of concealment of income or furnishing inaccurate particulars of income by the assessee. Moreover we respectfully follow KP SANGHVI SONS LLP case 2024 (2) TMI 1552 - ITAT MUMBAI and are of considered opinion that the revenue has failed to show that the assessee has concealed the particulars of income or has furnished inaccurate particulars of such income and thus the case of the assessee is not covered u/s 271(1)(c) of the Act. Accordingly the penalty imposed on accepting addition made on estimation basis is not sustainable - Appeal of assessee allowed.

Summary

The core legal questions considered in this judgment pertain to the validity and justification of imposing penalty under Section 271(1)(c) of the Income-tax Act, 1961, in a case where additions to income were made on an estimated basis due to alleged bogus purchases. Specifically, the issues include:

1. Whether penalty under Section 271(1)(c) can be sustained when the addition to income is made on an estimated basis rather than on concrete proof of concealment or furnishing of inaccurate particulars.

2. Whether the assessee's conduct in recording purchases based on invoices from parties whose genuineness could not be verified amounts to concealment of income or furnishing inaccurate particulars under the meaning of Section 271(1)(c).

3. The applicability of settled legal principles and precedents regarding penalty imposition in cases involving estimated additions due to alleged bogus transactions.

Issue-wise Detailed Analysis:

1. Legality of Penalty Imposition under Section 271(1)(c) where Addition is on Estimated Basis

Legal Framework and Precedents: Section 271(1)(c) penalizes concealment of particulars of income or furnishing inaccurate particulars. The Supreme Court has clarified that penalty cannot be levied merely because an addition is made or a claim is disallowed; there must be concealment or inaccurate particulars. The judgment references the Supreme Court ruling in CIT vs. Reliance Petro Products (322 ITR 158), which elucidates that mere incorrect claims in law do not amount to furnishing inaccurate particulars.

Several coordinate bench decisions of the Tribunal were cited, including KP Sanghvi & Sons LLP vs. ACIT and M/s. V. K. Ispat & Alloys, which held that where additions are made on estimated basis, penalty under Section 271(1)(c) is not leviable. These decisions rely on High Court rulings such as CIT vs. Krishi Tyre Retreading and Rubber Industries, CIT vs. Sangrur Vanaspati Mills Ltd., and CIT vs. Subhash Trading Co. Ltd., which consistently establish that estimation-based additions do not satisfy the threshold of concealment or furnishing inaccurate particulars.

Court's Interpretation and Reasoning: The Tribunal examined the facts where the Assessing Officer (AO) made additions based on a profit element estimated at 12.5% of the total alleged bogus purchases. The AO's inability to serve notices to the parties involved and reliance on information from DGIT (Inv) did not translate into concrete proof of concealment by the assessee.

The Tribunal observed that the addition was purely on an estimation basis, and the assessee had maintained books of accounts and returned income which was processed under Section 143(1). The reopening under Section 147 and subsequent addition did not convert the case into one of concealment or inaccurate particulars.

Key Evidence and Findings: The assessee furnished addresses, invoices, ledger accounts, and other documents. The AO's failure to serve notices to the parties at the addresses provided by the assessee and the return of notices marked "not known" or "no such address" was noted. The addition was made by applying a gross profit rate derived from other genuine purchases, which was an estimation method.

Application of Law to Facts: The Tribunal applied the principle that penalty cannot be levied where additions are based on estimates rather than definitive proof of concealment. It held that the AO and CIT(A)'s confirmation of penalty was contrary to established legal principles and precedents.

Treatment of Competing Arguments: The Revenue argued that failure to prove genuineness of purchases amounted to furnishing inaccurate particulars. The Tribunal rejected this, emphasizing that the Revenue did not demonstrate concealment or inaccurate particulars as required under Section 271(1)(c). The Tribunal relied on authoritative rulings to conclude that estimation-based additions do not attract penalty.

Conclusion: The Tribunal directed deletion of the penalty under Section 271(1)(c) as the addition was on an estimated basis and did not constitute concealment or furnishing inaccurate particulars.

2. Whether Recording of Purchases from Parties with Unverifiable Genuineness Constitutes Concealment or Furnishing Inaccurate Particulars

Legal Framework and Precedents: The Supreme Court's explanation in Reliance Petro Products clarifies that concealment and furnishing inaccurate particulars require a factual inaccuracy or omission in the particulars furnished by the assessee. Mere disallowance of claims or additions on estimation does not suffice.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee had recorded the purchases in books, filed returns, and complied with audit requirements under Section 44AB. The inability of the Revenue to serve notices to the alleged bogus parties did not ipso facto prove that the assessee concealed particulars or furnished inaccurate particulars.

Key Evidence and Findings: The assessee provided invoices, ledger extracts, payment documents, bank statements, and registration details. These documents were not found to be factually incorrect or inaccurate by the Tribunal.

Application of Law to Facts: The Tribunal applied the principle that furnishing particulars means providing details of income and claims. Since the assessee had furnished details albeit disputed by the Revenue, no concealment or inaccuracy was established.

Treatment of Competing Arguments: The Revenue's reliance on the failure to prove genuineness was countered by the Tribunal's observation that such failure does not amount to concealment or furnishing inaccurate particulars. The Tribunal emphasized that the penalty provisions must be strictly construed.

Conclusion: The Tribunal held that the facts did not satisfy the conditions for penalty under Section 271(1)(c) as there was no concealment or furnishing of inaccurate particulars by the assessee.

3. Applicability of Settled Legal Principles and Precedents on Penalty in Cases of Estimated Additions

Legal Framework and Precedents: The Tribunal extensively relied on coordinate bench decisions and High Court rulings that establish a consistent principle: penalty under Section 271(1)(c) is not leviable where additions are made on estimated bases, especially in cases of alleged bogus purchases.

Court's Interpretation and Reasoning: The Tribunal found the facts of the present case squarely covered by these precedents and followed the ratio therein. The Tribunal underscored that these decisions form a settled legal position and must be respected.

Key Evidence and Findings: The Tribunal referred to the earlier Tribunal order in ITA No. 4121/Mum/2018, where the matter was remanded to restrict addition based on gross profit rate of genuine purchases. The penalty was imposed on the basis of this estimated addition.

Application of Law to Facts: The Tribunal applied the settled legal principle that estimation-based additions cannot sustain penalty under Section 271(1)(c).

Treatment of Competing Arguments: The Revenue's argument that penalty should be sustained due to non-genuineness of purchases was rejected in light of the settled principle that estimation additions alone do not constitute concealment or furnishing inaccurate particulars.

Conclusion: The Tribunal confirmed that the penalty was not sustainable and directed its deletion.

Significant Holdings:

"We are of view that the penalty u/s. 271(1)(c) of the Act cannot be levied where the addition is made on estimated basis."

"By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars."

"The Revenue has failed to show that the assessee has concealed the particulars of income or has furnished inaccurate particulars of such income and thus the case of the assessee is not covered u/s 271(1)(c) of the Act."

"Accordingly the penalty imposed on accepting addition made on estimation basis is not sustainable."

The Tribunal established the core principle that penalty under Section 271(1)(c) cannot be imposed merely because an addition to income is made on an estimated basis, especially in cases involving alleged bogus purchases where the assessee has furnished particulars and maintained books of accounts. The final determination was to delete the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.