2018 (1) TMI 1073 - AT - Income Tax

Penalty u/s 271(1)(c) - unrecorded sales and profit estimation - estimation on the estimated sale of the goods clandestinely removed by the assessee - CIT-A deleted the penalty - Held that - Revenue is not privy to the relevant facts (1) precise quantity of such recorded sales and (2) precise income out of the sale of such goods and they merely relied on the figures given by the assessee. The quantity of unaccounted production is estimated by the Excise Department and the taxable income is estimated for the income-tax Department by the assessee applying the flat rate of 4%. Despite the absence of any discussion in the order of the CIT(A) on this part of the issue of argument, specially, the CIT(A) granted relief presuming that this segment of income is also arrived at by the estimation. In our view, the said presumption is fair and reasonable. Nothing is brought to our notice by the Ld. DR to demonstrate the estimations are not involved both in arriving at the figure of unrecorded sales and the taxable income. For our mind, it appears that the income of ₹ 76,48,922/- is also the product of estimation and the same is accepted by the AO/CIT(A)/ITSC. Therefore, it constitutes a reasonable presumption by the CIT(A). Therefore, the order of CIT(A) is fair and reasonable for the said reasons too. Accordingly, the grounds raised by the Revenue are dismissed.

Summary

Issues Involved:
1. Deletion of penalty imposed under section 271(1)(c) of the Income-tax Act.
2. Estimation of suppressed production and concealed income.
3. Admissibility of penalty on admitted income in revised computation.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c) of the Income-tax Act:
The Revenue contested the deletion of a penalty amounting to ?56,08,774/- imposed under section 271(1)(c) of the Income-tax Act. The penalty was related to an addition of ?1,81,51,470/- made by the Assessing Officer (AO) for the Assessment Year (A.Y.) 2009-10. The AO's penalty order dated 14-03-2014 cited the assessee's clandestine removal of goods and evasion of excise duty as the basis for the penalty. The CIT(A) deleted the penalty, reasoning that the additions were based on estimations and debatable issues, and thus, no penalty should be levied. The Tribunal upheld the CIT(A)'s decision, noting that penalty on estimated additions is a settled issue and should be deleted.

2. Estimation of Suppressed Production and Concealed Income:
The AO estimated the assessee's unrecorded production based on electricity consumption and discrepancies found during an investigation by the Directorate General of Central Excise Intelligence (DGCEI). The AO rejected the assessee's estimated additional profit of ?76,48,922/- and made an addition of ?11,61,01,030/-. The CIT(A) later restricted this addition to 4% of the estimated sales of suppressed production, amounting to ?1,73,51,470/-, and confirmed an additional ?8,00,000/- for working capital, totaling ?1,81,51,470/-. The Tribunal found that the estimation of suppressed production and concealed income was based on arbitrary and debatable grounds, supporting the CIT(A)'s deletion of the penalty.

3. Admissibility of Penalty on Admitted Income in Revised Computation:
The Revenue argued that the penalty should be confirmed at least for the admitted income of ?76,48,922/- in the revised computation of income. The Tribunal noted that this amount was also derived through estimation by applying a flat rate of 4% to the clandestinely removed goods. The Tribunal agreed with the CIT(A) that the entire penalty, including the portion related to the admitted income, should be deleted as it was based on estimations. The Tribunal highlighted that the Revenue did not provide any incriminating material to prove the precise amount of income from the clandestinely removed goods, thus supporting the CIT(A)'s decision to delete the penalty.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order to delete the penalty of ?56,08,774/- imposed under section 271(1)(c) of the Income-tax Act. The Tribunal agreed that the additions were based on estimations and debatable issues, and therefore, no penalty should be levied. The Tribunal also upheld the CIT(A)'s decision that the admitted income in the revised computation was also based on estimations, and thus, the penalty on this amount should also be deleted.