2009 (11) TMI 891 - HC - Income Tax

Penalty u/s 271(1)(c) - unaccounted rice bran and under-valuation of closing stock of rice bran - As per ITAT additions are based on the estimation when the same is on the basis of the concrete evidence in the form of documents found during the course of survey operation - HELD THAT - ITAT has recorded a finding of fact with regard to the addition of income being made on the basis of estimate, which in our opinion does not require any interference. A perusal of the order passed by the ITAT in the assessment proceedings which has been quoted in extenso in the impugned order, makes it clear that addition of the income was made only on the basis of estimate. Therefore, we do not find that the learned ITAT has recorded a wrong finding in this regard. As far as the finding with regard to concealment of income is concerned, it is clear that in the original assessment order, there was no finding that the assessee has concealed its income and furnished inaccurate particulars of income, but subsequently after the cancellation of the assessment, AO has proceeded on the basis that the assessee, while inflating the electricity charges and under-valuing the closing stock of rice bran, has suppressed the income. Therefore, the additions on account of processing of unaccounted rice bran and under-valuation of closing stock of rice bran were made and income was assessed on the estimate base. Therefore, in our opinion, the ITAT is right while coming to the conclusion that when the assessment is made on estimate basis, the penalty should not be imposed. In this regard, reference can be made to a decision in Harigopal Singh 2002 (8) TMI 65 - PUNJAB AND HARYANA HIGH COURT . No substantial question of law

Summary

Issues:
1. Assessment made on estimate basis.
2. Justification for penalty imposition under section 271(1)(c).
3. Finding of concealment of income.
4. Double jeopardy in penalty imposition.
5. Interpretation of findings by ITAT.

Analysis:

Assessment made on estimate basis:
The case involved an appeal by the revenue against the ITAT's order concerning the assessment year 2000-01. The ITAT directed the application of a growth profit rate of 10% resulting in the assessment of the assessee's income at a specific amount. The ITAT adopted a flat rate of 10% for calculating unaccounted profits, indicating an assessment made on an estimate basis. The ITAT's decision was based on the principle that when an assessment is made on an estimate basis, there is a possibility of human error, and therefore, penalty imposition may not be justified.

Justification for penalty imposition under section 271(1)(c):
The revenue contended that the addition was based on concrete evidence found during a survey operation, and a definite finding regarding concealment of income was recorded by the Assessing Officer. However, the ITAT held that the addition was made on an estimate basis and that no concealment of income was definitively established during the original assessment. The ITAT emphasized that penalty proceedings and quantum proceedings are distinct, and while estimation may be a ground for quantum addition, it may not warrant penalty imposition.

Finding of concealment of income:
The ITAT's decision was based on the absence of a specific finding of concealment in the original assessment order. The Assessing Officer proceeded to assert concealment post-assessment cancellation, attributing income suppression to inflated charges and under-valuation. The additions made were on the basis of estimate, leading the ITAT to conclude that penalty imposition was unwarranted in such circumstances.

Double jeopardy in penalty imposition:
The revenue raised concerns about potential double jeopardy in penalty imposition under section 271(1)(c) due to the payment of tax and penalty under different provisions of the Act. The ITAT's stance was that when an assessment is made on an estimate basis, penalty imposition may not be justified, as evidenced by the absence of a definitive finding of concealment in the original assessment.

Interpretation of findings by ITAT:
The High Court upheld the ITAT's decision, noting that the addition of income was indeed based on an estimate and that no concealment finding existed in the original assessment. The Court referenced a previous decision to support the ITAT's conclusion that penalty imposition should not occur when assessments are made on an estimate basis. Consequently, the appeal by the revenue was dismissed, with the Court finding no substantial question of law arising from the ITAT's order.