Penalty u/s 271(1)(c) deleted as quantum addition was reduced significantly

Penalty u/s 271(1)(c) deleted as quantum addition was reduced significantly from 100% to 20% in respect of bogus purchases.

In the instant case, the assessee had challenged the order passed by the CIT(A) confirming penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the Act) imposed by the Assessing Officer (AO) on account of estimated additions u/s 69C of the Act towards bogus purchases.

ABCAUS Case Law Citation
ABCAUS 3524 (2021) (07) ITAT

Important case law relied referred:
Vijay Proteins Ltd. 58 taxmann.com 44 (Guj)
Sanjay Oil Cake Industries (2009) 316 ITR 274 (Gu j)

In the course of the regular assessment of the u/s 143(3) of the Act, the AO made an addition on account of bogus purchases entered in the instant appeal, the assessee had challenged the order of CIT(A) in confirming books of account by invoking section 69C of the Act.

In the quantum appeal before the CIT(A), an estimation of disallowance was restricted to 20% of the said bogus purchases as against the 100% disallowance made by the Assessing Officer (AO).

In the first appeal against the penalty order, the CIT(A) confirmed the action of the AO towards the imposition of the penalty.

Penalty u/s 271(1)(c) deleted as quantum addition was reduced significantly

The Tribunal observed that the disallowance was estimated on the basis of presumption that expenditure incurred was excessive having regard to the nature and business activities of the assessee and also having regard to the non-availability of cogent evidences to support purchases.

The Tribunal stated that Explanation 1 to section 271(1)(c) makes it clear that the statue visualises the assessment proceedings and penalty proceedings to be wholly distinct and independent to each other.

The Tribunal said that while Revenue may be justified in making estimated disallowance in quantum proceedings, such disallowance of expenses that too on estimated basis, could not automatically fall within mischief of section 271(1)(c) of the Act. The Tribunal said that while a claim towards expenditure may not be found acceptable in quantum proceedings.

The Tribunal stated that the Hon’ble High Court has affirmed the view that penalty can not be imposed on such estimated additions in somewhat similar circumstances.

The Tribunal noted that in the quantum proceedings the assessment order has been altered by the first appellate authority in a significant way. A drastic reduction was made in quantification of disallowance towards bogus purchases from 100% to 20%.

The Tribunal stated that the efficacy of the very basis of initiation of penalty proceedings has reduced into insignificance, whereas the AO had continued the penalty proceedings on the basis of same disallowance.

The Tribunal stated that the satisfaction of the AO forming basis of the issuance of the penalty notice stood significantly modified in the course of the quantum appellate proceedings and thus could not be acted upon.

Accordingly, the Tribunal deleted the penalty and allowed the appeal in favour of the assessee.

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