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Issues Involved:
1. Justification of penalty u/s 271(1)(c) for treating the assessee as a 'new assessee' within the meaning of Explanation 3 to section 271(1)(c). 2. Penalty levied based on estimated income due to non-maintenance of books of account. 3. Contumacious conduct and bonafide explanation for estimation-based additions. 4. Automatic consequence of penalty due to addition made to total income. Summary: Issue 1: Justification of Penalty u/s 271(1)(c) for Treating the Assessee as a 'New Assessee' The CIT(A) confirmed the penalty for A.Y. 1998-99 under Explanation 3 to section 271(1)(c), as the assessee was not previously assessed to tax. For A.Y. 1999-00 to 2002-03, Explanation 3 was deemed inapplicable, and penalties were to be levied only on additional income assessed over the returned income. For A.Y. 2003-04 to 2005-06, Explanation 3 was applicable, but the time limit for assessment had not expired when returns were filed, thus penalties were not justified. Issue 2: Penalty Levied Based on Estimated Income The assessee argued that penalties should not be levied on estimated income. The A.O. estimated profits at 1.5% of turnover due to non-maintenance of books and non-filing of returns, which was later reduced to 1% by the CIT(A). The ITAT upheld the penalty for A.Y. 1998-99 to 2002-03, as the assessee failed to file returns in time and provided no bonafide explanation for the delay. For A.Y. 2003-04 to 2005-06, penalties were cancelled as returns were filed within the prescribed time limits. Issue 3: Contumacious Conduct and Bonafide Explanation The assessee's conduct was deemed contumacious due to the non-filing of returns until the survey u/s 133A. The ITAT found no bonafide explanation for the delay, thus justifying penalties for A.Y. 1998-99 to 2002-03. The penalties for A.Y. 2003-04 to 2005-06 were cancelled as returns were filed within the time limits. Issue 4: Automatic Consequence of Penalty Due to Addition Made to Total Income The ITAT confirmed penalties for A.Y. 1998-99 to 2002-03, rejecting the argument that penalties were an automatic consequence of income addition. The penalties for A.Y. 2003-04 to 2005-06 were cancelled as the returns were filed within the time limits, and the A.O. was incorrect in initiating proceedings u/s 147 for these years. Conclusion: Penalties for A.Y. 1998-99 to 2002-03 were confirmed, while penalties for A.Y. 2003-04 to 2005-06 were cancelled. Appeals for A.Y. 1998-99 to 2002-03 were dismissed, and appeals for A.Y. 2003-04 to 2005-06 were allowed.
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