2016 (7) TMI 1343 - AT - Income Tax

Penalty u/s 271(1)(c) - estimation of income from the accommodation entries - Held that - The undisputed fact is that there is difference of opinion as to how much income should be estimated for the hawala entries-the AO estimated at a particular percentage whereas the assessee had shown the income at a different percent. The addition made by the AO and confirmed by the FAA in quantum addition may or may not be. But levying penalty on the basis of an estimated addition could not be held to be justified. No authority is required to be cited that penalty and assessment proceedings are separate and distinct proceedings and the quantum proceedings should not result in automatic levy of concealment penalty. It is a case of estimation of income by the AO and the assessee. Adoption of a particular rate for estimating the income of the assessee for the year under consideration we hold that the FAA was not justified in confirming the order passed by the AO u/s. 271(1)(c) of the Act. Therefore reversing his order we decide the effective ground of appeal in favour of the assessee.

Summary

Issues: Levy of penalty u/s. 271(1)(c) of the Income Tax Act for AYs 2004-05 and 2005-06.

Detailed Analysis:

Issue 1: AY 2004-05 - Penalty Levied by AO
The AO estimated income from accommodation entries at 2% based on seized material and statements, rejecting books of accounts. The FAA confirmed AO's decision despite the assessee's argument for a lower rate based on Tribunal's order. The penalty was imposed under section 271(1)(c) after quantum addition confirmation.

Issue 2: AY 2004-05 - Dispute Over Commission Rate
Assessee challenged penalty citing Reliance Petro Products Ltd. case and argued no concealment as it declared 0.15% income, supported by third parties. FAA upheld penalty citing MAK Data Private Ltd. case, emphasizing no disclosure absolution.

Issue 3: AY 2004-05 - Tribunal's Decision and Ruling
Tribunal held commission income at 0.15% in another case. Discrepancy in estimated income led to penalty imposition. Citing Aero Traders P. LTD. case, Tribunal reversed FAA's decision, emphasizing penalty not warranted for estimated profit addition.

Issue 4: AY 2005-06 - Similar Circumstances
Similar to AY 2004-05, the penalty was levied by the AO. Following the Tribunal's decision in the previous appeal, the penalty was overturned in favor of the assessee.

Conclusion:
The Tribunal reversed the penalty imposed under section 271(1)(c) for both AYs 2004-05 and 2005-06, emphasizing the distinction between assessment and penalty proceedings. Citing legal precedents, the Tribunal ruled in favor of the assessee, highlighting the need for conclusive evidence of concealed income for penalty imposition, especially in cases of estimated income. The appeals by both assessees were allowed, setting aside the penalties.