2015 (6) TMI 925 - AT - Income Tax

Penalty u/s 271(1)(c) - whether penalty cannot be levied in respect of the addition made on estimate basis by applying the gross profit rate? - CIT(A) deleted penalty levy - Held that - In the instant case, in pursuance to notice under section 148, revised return of income was filed in which entire income was surrendered with an explanation. The revised assessment was regularized by the revenue. AO had failed to take any objection that declaration of income made by assessee in his revised return and his explanation were not bona fide. Therefore, impugned order of Tribunal was held justified and accordingly upheld. In this background, CIT(A) rightly observed that case of assessee is squarely covered in case of CIT vs. Rajiv Garg 2008 (7) TMI 363 - PUNJAB AND HARYANA HIGH COURT wherein it was held that the revised return filed by the assessee was accompanied by a note in which he had submitted that he had surrendered the entire amount of sale proceeds of shares to buy peace of mind and to avoid hazards of litigation and also to save himself from any penal action. CIT(A) rightly held that Assessing Officer was not justified in levying penalty u/s 271(1)(c) of the Act on the additional income of ₹ 20.00 lacs so disclosed in the return of income furnished in response to notice issued u/s 148 of the Act. Without prejudice to above, CIT(A) observed that Assessing Officer vide para-5(3) of penalty order had observed that both the ingredients (20,00,000 and ₹ 3,63,275) get merged at the end because the basis of concealment of income is admittedly suppressed sales. If it is considered, then the whole of the addition was made by applying the particular profit rate and the said addition is only on estimated basis. The penalty cannot be levied on estimated income as held n case of CIT vs. Subhash Trading Co. (1995 (11) TMI 37 - GUJARAT High Court). Addition made on account of profit on suppressed sales - Assessing Officer had made addition of ₹ 10,90,436/- by applying the profit rate of 8.5% on the unaccounted sales. In appeal, CIT(A) had restricted the profit rate at 6.5%. In appeal before the Tribunal, the profit rate of 6.5% was held reasonable by ITAT, Rajkot. Thus, addition made for ₹ 10,90,436/- by Assessing Officer came to ₹ 3,63,275/- after appellate order of CIT(A) and same had confirmed by Tribunal as stated above. In view of above, CIT(A) justified in deleting penalty of concealment of income on additional income disclosed for ₹ 20 lacs as well as on estimated income of ₹ 3,63,275/- which was rightly deleted by CIT(A). - Decided in favour of assessee.

Summary

Issues:
- Imposition of penalty under section 271(1)(c) of the Income Tax Act on additional income disclosed by the assessee.
- Justification for the deletion of penalty by the Commissioner of Income Tax (Appeals).
- Assessment of penalty based on estimated income and profit on suppressed sales.

Analysis:

Issue 1: Imposition of Penalty on Additional Income:
The Assessing Officer imposed a penalty of Rs. 16,54,292 under section 271(1)(c) on the additional income of Rs. 20 lakhs disclosed by the assessee. The disclosure was made voluntarily by the assessee before the initiation of reassessment proceedings. The Tribunal referred to the case of Sudarshan Silks & Sarees vs. CIT and CIT vs. Rajiv Garg to establish that penalty is not exigible in cases where additional income is voluntarily declared by the assessee. The Tribunal found that the disclosure of income was made in good faith and to avoid litigation. Therefore, the penalty on the disclosed additional income was not justified.

Issue 2: Justification for Deletion of Penalty:
The Commissioner of Income Tax (Appeals) granted relief to the assessee by deleting the penalty imposed by the Assessing Officer. The CIT(A) considered various contentions and held that the penalty cannot be levied on estimated income based on the gross profit rate. The CIT(A) also emphasized that the burden is on the revenue to establish concealment of income. The Tribunal upheld the CIT(A)'s decision, citing previous judgments and holding that the penalty was rightly deleted as the addition was made on an estimated basis.

Issue 3: Assessment of Penalty on Estimated Income:
The Assessing Officer had made an addition of Rs. 10,90,436 for profit on suppressed sales, which was later reduced to Rs. 3,63,275 by the CIT(A) and upheld by the Tribunal. The Tribunal found the profit rate of 6.5% to be reasonable and justified the deletion of penalty on the estimated income of Rs. 3,63,275. Therefore, the Tribunal upheld the decision to delete the penalty on both the disclosed additional income and the estimated income of profit on suppressed sales.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, emphasizing that the penalty on the disclosed additional income and estimated income of profit on suppressed sales was not justified based on the voluntary disclosure by the assessee and the application of reasonable profit rates. The judgment was pronounced on March 27, 2015, by the Appellate Tribunal ITAT Ahmedabad.