SAMEER D. PUNJABI,MUMBAI vs. ITO 25(1)(1), MUMBAI

The dispute in this appeal relates to penalty imposed under section 271(1)(c) of the Act amounting to Rs.18,006/-.

A perusal of the order of the authorities below reveal that purchases effected by the assessee from four parties totalling to Rs.4,66,133/- were found to be doubtful in view of the information received regarding the four parties from the Maharashtra Sales Tax Department. In the assessment proceedings assessee was not able to produce the four parties for verification and, therefore, the Assessing Officer proceeded to treat the purchases to the extent of Rs.4,66,133/- as bogus. So however, the Assessing Officer did not add the entire amounts of purchases to the returned income but added only profit element attributable to such purchases, which he estimated at 12.50% thereby, resulting in an addition of Rs.58,266/- to the returned income. Subsequently, the Assessing Officer levied penalty under section 271(1)(c) of the Act on the ground that assessee had concealed the income to the above extent and accordingly, a penalty of Rs.18,006/- was imposed. The penalty has since been affirmed by the CIT(A) also.

We find that the plea of the assessee before the lower authorities has been that the levy of penalty is not automatic and that the transactions of purchase effected from the four parties were well documented and the payments were also made through banking channels. After hearing the Ld. Departmental Representative, we find 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 Assessing Officer 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 Assessing Officer 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 Assessing Officer to delete the penalty of Rs.18,006/- imposed under section 271(1)(c) of the Act.

In the result, appeal of the assessee is allowed.