2016 (12) TMI 1189 - AT - Income Tax

Penalty u/s 271(1)(c) - sale of agriculture produce in the mandi - Held that - AO made the impugned addition for not producing the relevant evidence showing the sale of agriculture produce in the mandi and the CIT-A confirmed the same observing that the Assessee did not produce anything before the AO in support of his claim and the Tribunal held that income declared under the head agriculture is excessive and determined the same by restricting to ₹ 10,00,000/-, therefore, the income on agriculture determined by the Tribunal on the basis of estimation was become final on which the AO imposed penalty. Therefore, it is clear from the addition was made on the basis of estimation. Thus penalty deleted - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Specificity of the charge in the penalty notice.
3. Validity of penalty imposition based on estimated income.

Issue-wise Detailed Analysis:

1. Legality of the Penalty Imposed under Section 271(1)(c):
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in confirming the penalty of ?5,04,710/- under Section 271(1)(c) of the Income Tax Act. The assessee contended that the penalty was unjustified as there was no concealment of income or submission of inaccurate particulars. The Tribunal observed that the Assessing Officer (AO) had added ?15,40,370/- to the total income of the assessee, deeming it not possible to earn such an amount from the small agricultural land held by the assessee. The penalty proceedings were initiated based on this addition, but the Tribunal had later restricted the agricultural income to ?10,00,000/-, treating the balance as income from other sources. The Tribunal ultimately found that the penalty was imposed on estimated income, which is not permissible under the Act, and thus, the penalty was cancelled.

2. Specificity of the Charge in the Penalty Notice:
The assessee argued that the penalty notice issued under Section 274 of the Act was defective as it did not specify the exact charge—whether it was for concealment of income or furnishing inaccurate particulars. The CIT(A) had dismissed this argument, stating that the AO had clearly mentioned in the assessment order that the assessee furnished inaccurate particulars of income. The Tribunal, however, noted that the AO had only ticked the portion related to furnishing inaccurate particulars in the penalty notice. The Tribunal found that the decision of the Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, which requires the specific charge to be discernible from the assessment order or penalty notice, was not applicable in this case.

3. Validity of Penalty Imposition Based on Estimated Income:
The assessee contended that the penalty could not be imposed on income that was based on estimation. The Tribunal referred to several decisions, including those of the Punjab & Haryana High Court in the cases of Hari Gopal, Ravail Singh, and Sangrur Vanaspati Mills Ltd., which held that penalty under Section 271(1)(c) is not applicable where income is assessed on an estimate basis without concrete evidence of concealment. The Tribunal found that the addition made by the AO was based on the estimation of agricultural income and not on concrete evidence. Consequently, the penalty imposed on such estimated income was deemed invalid. The Tribunal concluded that the facts and circumstances were similar to the cited cases, and thus, the penalty was cancelled.

Conclusion:
The Tribunal allowed the appeal of the assessee, cancelling the penalty of ?5,04,710/- imposed by the AO and confirmed by the CIT(A), on the grounds that the penalty was based on estimated income and the penalty notice did not specify the exact charge. The judgment emphasized the importance of concrete evidence for imposing penalties and the necessity for specificity in penalty notices. The order was pronounced in open court on 21st December 2016.