2019 (1) TMI 749 - AT - Income Tax

Penalty u/s 271(1)(c) - failure to prove that loan was taken - dis-allowance of certain expenditures - estimation of GP rate - Held that - On appreciation of the facts including the GP rate declared for the earlier years, Ld. CIT(A) thought it fit to adopt the GP rate of 9% giving some margin for the increase in turnover and on that premise, CIT(A) deleted the addition to the extent of ₹ 6,57,641/-and confirmed the addition to the extent of ₹ 2,87,543/-. All this is subjective exercise done by the authorities and as a matter of fact, as rightly observed by the 1st appellate authority in the quantum appeal there is no basis for the learned Assessing Officer to estimate the GP rate at 12%. At the same time CIT(A) also sustained a portion of the addition by adopting the GP rate at 9% by making reference to the GP rate in the earlier years, increase in the sundry creditor or liability and also in the turnover. All the circumstances suggest that the addition has no relation either to concealment of income or furnishing of inaccurate particulars thereof. In order to attract the provisions of Section 271(1)(c) there must be an allegation that there was concealment of income or furnishing of inaccurate particulars thereof, in the absence of which we find it difficult to sustain the penalty on this score. No penalty could be levied on the difference resulted due to adoption of different GP rates made on estimate basis. Coming to the levy of penalty on account of confirmation of addition of loan received from Smt. Bindu Sharma who was drawing salary from the assessee company and the wife of the director, is concerned there is no dispute as to the identity of Bindu Sharma and the learned Assessing Officer never doubted the same. Addition was made on the ground that the source of Bindu Sharma was not proved. Insofar as the identity and genuineness of Smt. Bindu Sharma is not in dispute.Merely because an addition is made by disbelieving her capacity to lend the loan.Such a fact, ipso facto, does not lead to the levy of penalty. We find it difficult to sustain the penalty levied in respect of the additions made either on estimate basis, or by disallowing some expense, or on the ground that this source of the capacity of the creditor was not proved. We, therefore, find that the levy of penalty cannot be sustained and the same has to be quashed. We, accordingly, direct the learned Assessing Officer to delete the penalty. - Decided in favour of assessee.

Summary

Issues:
1. Assessment of income including trading additions and loans received.
2. Appeal against assessment order.
3. Penalty proceedings under section 271(1)(c) of the Act.
4. Challenge to the levy of penalty.

Analysis:
1. The assessee, a transport company, filed its return for the assessment year 2004-05 declaring an income of ?1,38,230. The assessment was completed with certain additions, including trading additions related to freight charges, loans received from the director, and 'hamali' charges. In the quantum appeal, the Ld. CIT(A) reduced the additions on freight charges, loans, and 'hamali' charges. Both revenue and assessee appealed to the Tribunal, where the revenue's appeal was dismissed due to low tax effect, and the cross objections of the assessee were deemed infructuous.

2. Subsequently, penalty proceedings were initiated under section 271(1)(c) of the Act, alleging concealment of income and inaccurate particulars. The penalty was levied by the Assessing Officer, upheld by the Ld. CIT(A), based on the sustained additions. The assessee contended that no inaccurate particulars were furnished, and relied on various case laws to support their position.

3. The Tribunal observed that the additions were made on an estimate basis, with varying GP rates applied. The Ld. CIT(A) reduced the additions based on subjective assessments. The Tribunal held that the penalty under section 271(1)(c) cannot be sustained when income is assessed on an estimate basis without concrete evidence of concealment.

4. Regarding the loan received from the director's wife, the Tribunal noted that the source was not disputed, and the mere disallowance of the claim does not warrant a penalty. Similarly, in the case of 'hamali' charges, where no evidence of falsity was provided, the disallowance did not justify a penalty. Citing relevant case laws, the Tribunal concluded that the penalty levied on estimate-based additions or disallowed expenses was not sustainable. Consequently, the penalty was quashed, and the appeal of the assessee was allowed.