2015 (7) TMI 1363 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance on account of cost of Audio CDs to 20% of the expenses claimed - HELD THAT - Ultimately part of the disallowance has been confirmed on estimate basis. It is almost settled now that penal action cannot be taken on the basis of estimated additions. A reference may be made to the decisions of the Hon ble Punjab Haryana High Court in the case of CIT Vs Ravail Singh and Co. 2002 (1) TMI 52 - PUNJAB AND HARYANA HIGH COURT CIT Vs Sangrur Vanaspati Mills Ltd. 2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT . Therefore, in our considered opinion, this is not a fit case for levy of penalty because the part of the disallowance was confirmed on estimated basis. For the sake of completeness, a perusal of the assessment order shows that the impugned addition has been made by the AO at para-9 of his order. Admittedly, no satisfaction has been recorded for the initiation of the penalty proceedings whereas in respect of every disallowance made. The AO has specifically mentioned that penalty proceedings u/s. 271(1)(c) are initiated separately. Since there is nothing to show that AO had recorded his satisfaction as required by the statute for initiation of penalty proceedings. Therefore, order levying penalty cannot be sustained.- Decided in favour of assessee.

Summary

Issues:
Penalty imposition on disallowance of expenses for Audio CDs.

Analysis:
The appeal was against the order of the Ld. CIT(A) regarding the assessment year 2007-08. The Tribunal had previously restricted the disallowance on Audio CDs cost to 20% of the claimed expenses. The AO imposed a penalty on this disallowance along with others. The Ld. CIT(A) deleted penalties on other disallowances but confirmed it for the Audio CDs disallowance.

The assessee argued that the disallowance was made on an ad hoc basis as per the Tribunal's order and there was no concealment or inaccurate particulars. They also contended that the AO did not record any satisfaction for the disallowance. The Tribunal's decision in another case was cited in support.

The Departmental Representative supported the Revenue authorities' orders. The Tribunal examined the orders below, considered the decisions cited, and noted that the disallowance was confirmed on an estimated basis. It was established that penal action cannot be based on estimated additions, citing relevant case law. The Tribunal found no grounds for penalty levy due to the estimated nature of the disallowance.

The assessment order revealed that the AO made the addition without recording satisfaction for penalty initiation, unlike for other disallowances. Citing a previous Tribunal decision, the Tribunal concluded that the penalty order could not be upheld without proper satisfaction recorded by the AO. Consequently, the Tribunal directed the AO to delete the penalty imposed, and the appeal by the assessee was allowed.