2017 (4) TMI 1059 - AT - Income Tax

Penalty u/s 271(1)(c) - addition made by the AO by estimating the value of three items of stock - Held that - The findings of the AO for levying penalty that the Assessee failed to offer an explanation and hence, Explanation 1 to section 271(1)(c) was squarely attracted and the addition made in the assessment order in computing the income of the assessee shall be deemed to represent the income in respect of which particulars have been concealed is factually incorrect and legally untenable as explanation alongwith documentary evidence had been filed to substantiate the value of the three items because of which the AO estimated the value of three items at ₹ 59.48 per mtr instead of ₹ 191.57 per mtr estimated by the survey team. Thereafter, the Ld. CIT(A) estimated the value of three items at ₹ 37.96 per mtr instead of ₹ 59.48 per mtr estimated by the AO. Keeping in view of the facts and circumstances of the case, we are of the view that penalty on estimation of valuation of the said items are not leviable and deserve to be cancelled. Our aforesaid view is fortified by the judgment in the case of Naresh Chand Agarwal vs. CIT 2013 (6) TMI 68 - ALLAHABAD HIGH COURT wherein observed that no penalty u/s 271(1)(c) can be imposed with reference to the addition made on estimation basis. The assessee has not furnished inaccurate particulars of income and there are no findings of the Assessing Officer and the Ld. CIT (Appeals) that the details furnished by the assessee in his return are found to be inaccurate or erroneous or false. Accordingly, we delete the penalty in dispute made u/s. 271(1)(c) - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the penalty order under Section 271(1)(c) of the Income Tax Act.
2. Alleged concealment and inaccuracy in the particulars of income.
3. Discrepancy in the valuation of inventory.
4. Justification and quantum of the penalty imposed.

Detailed Analysis:

1. Legality of the Penalty Order under Section 271(1)(c):
The primary issue revolves around the penalty order dated 23/12/2011, where a penalty of ?4,68,870/- was imposed under Section 271(1)(c) of the Income Tax Act. The Assessee contended that the penalty was arbitrary, unjust, and illegal. The Tribunal noted that the penalty was imposed due to the alleged concealment of income by undervaluing inventory. However, the Tribunal found that the addition was based on the estimation of the value of three items of stock, not on any factual inaccuracies or concealment.

2. Alleged Concealment and Inaccuracy in the Particulars of Income:
The Assessee argued that they had not furnished inaccurate particulars of income or concealed any income. The Tribunal observed that the penalty was levied on the basis of the estimated value of inventory items, which was a matter of difference in opinion rather than concealment. The Tribunal emphasized that the Assessee had provided detailed submissions and documentary evidence to substantiate the value of the inventory items, which were ignored by the lower authorities.

3. Discrepancy in the Valuation of Inventory:
The Tribunal examined the discrepancy in the valuation of inventory items, particularly zip fasteners, during the survey conducted on 07/09/2006. The Assessing Officer (AO) had estimated the value at ?59.48 per meter, while the Assessee claimed a lower value. The CIT(A) revised this to ?37.96 per meter. The Tribunal noted that the valuation was based on estimation due to the absence of direct evidence. The Hon’ble Delhi High Court also upheld this valuation, stating it was a reasonable view based on the facts and materials available.

4. Justification and Quantum of the Penalty Imposed:
The Tribunal found that the penalty was unjustified as it was based on estimated values rather than any concrete evidence of concealment or inaccurate particulars. The Tribunal referred to the judgment of the Hon’ble Allahabad High Court in Naresh Chand Agarwal vs. CIT, which ruled that no penalty under Section 271(1)(c) can be imposed on additions made on an estimation basis. The Tribunal concluded that the penalty of ?4,68,870/- was illegal and deserved to be canceled.

Conclusion:
The Tribunal, after considering all the facts, submissions, and relevant case laws, concluded that the Assessee had not furnished inaccurate particulars of income and there was no evidence of concealment. The penalty imposed under Section 271(1)(c) was deemed unjustified and was accordingly deleted. The appeal filed by the Assessee was allowed, and the penalty order was quashed.

Order Pronouncement:
The appeal filed by the Assessee stands allowed, and the penalty of ?4,68,870/- is deleted. The order was pronounced in the open court on 24/04/2017.

Summary:
The Tribunal found that the penalty imposed under Section 271(1)(c) was based on estimated values rather than concrete evidence of concealment or inaccurate particulars. The penalty was deemed unjustified and was canceled, allowing the Assessee's appeal.