2016 (4) TMI 1051 - AT - Income Tax

Penalty u/s 271(1)(c) - incorrect valuation of scrap - Held that - It is an admitted position that the assessee accepted the addition and did not challenge it further. But the mere fact that an addition has been accepted or is confirmed in quantum proceedings cannot be conclusive for the imposition of penalty. Further, the only basis of addition is the estimate of weight made by the Assessing Officer in valuing the scrap. Apart from the estimation made by the Assessing Officer, there is nothing to show that the assessee had valued the scrap incorrectly. It is a settled legal position that when income is estimated, there can be no question of imposing penalty u/s 271(1)(c) of the Act. The Hon ble Delhi High Court in CIT vs Aero Traders (P) Ltd. (2010 (1) TMI 32 - DELHI HIGH COURT ) has held that no penalty u/s 271(1)(c) can be imposed when income is determined on an estimate. It is apparent that in the instant case, the bedrock of penalty is estimation of scrap, hence, the penalty on this issue cannot be sustained. As far as the penalty on difference in VAT account is concerned, it is seen that the amount of ₹ 1,01,922/- disallowed as expenditure pertains to difference in VAT rates in Delhi and U.P. It is not the case of the Department that the assessee had made a bogus claim of the expense. The disallowance was made on the basis that since the assessee followed mercantile system of accounting, the amount remaining outstanding could not be written off as an expense. The assessee s act of debiting the outstanding amount as discount/rebate at worst can be termed as a claim not accepted but the inference of concealment of income or furnishing of inaccurate particulars of income does not hold good. The other two items on which the penalty has been imposed are late deposit of PF & ESI dues and on account of charity and donation remaining unverifiable. In our opinion, additions on these two accounts also do not justify imposition of penalty as no case of furnishing of inaccurate particulars or concealment is made out. Hence, imposition of penalty on these two issues also cannot be sustained. - Decided in favour of assessee

Summary

Issues:
- Levy of penalty under section 271(1)(c) of the Act for assessment year 2009-10 based on additions made during assessment.
- Justification of additions made by the Assessing Officer regarding difference in stock, VAT difference, ESI & PF payments, and charity & donation expenses.
- Confirmation of penalty by the First Appellate Authority and appeal before the Tribunal challenging the penalty order.
- Arguments presented by both parties regarding the additions and imposition of penalty.
- Analysis of the Tribunal on whether penalty under section 271(1)(c) is justified for the various additions made during assessment.
- Detailed examination of each addition and justification for the imposition or deletion of penalty.

Analysis:
The appeal before the Tribunal involved the imposition of a penalty under section 271(1)(c) of the Act for the assessment year 2009-10 based on additions made during assessment. The Assessing Officer had confirmed the levy of penalty amounting to ?1,62,656/- for discrepancies in the assessee's income declarations. The additions made during assessment included differences in stock valuation, VAT discrepancies, late payments of ESI & PF dues, and unverified charity & donation expenses.

The Assessing Officer had added amounts to the declared income of the assessee based on discrepancies found in various aspects of the financial records. These included differences in stock valuation, VAT treatment, late payments of ESI & PF dues, and unverified charity & donation expenses. The AO concluded that these discrepancies were intentional and aimed at suppressing profits or inflating expenses.

The First Appellate Authority confirmed the imposition of the penalty, leading the assessee to appeal before the Tribunal. The Tribunal considered the arguments presented by both parties, where the assessee contended that the additions were arbitrary and without basis, while the Department supported the penalty imposition.

Upon thorough examination, the Tribunal found that the penalty imposition was primarily based on the estimation of scrap weight and differences in VAT treatment. However, it was noted that there was no evidence of deliberate concealment of income or furnishing inaccurate particulars beyond these estimations. Citing legal precedents, the Tribunal emphasized that penalties under section 271(1)(c) cannot be imposed solely on estimation grounds.

The Tribunal further analyzed each addition separately. Regarding the stock valuation and VAT discrepancies, it was held that the assessee's actions did not amount to deliberate concealment or furnishing of inaccurate particulars. Similarly, the late payments of ESI & PF dues and unverified charity & donation expenses did not warrant penalty imposition as there was no evidence of intentional wrongdoing.

Consequently, the Tribunal directed the deletion of the entire penalty amount of ?1,62,656/-, allowing the appeal of the assessee. The judgment highlighted the importance of concrete evidence of deliberate concealment or inaccuracies to justify penalties under section 271(1)(c) of the Act.