2019 (4) TMI 197 - AT - Income Tax

Penalty U/s 271(1)(c) - income computed after relief provided by Hon ble CIT(A) - non specifying the limb for reasons in the penalty notice to impose the penalty i.e. whether the penalty was initiated for concealment of particulars of income or for furnishing inaccurate particulars of income - HELD THAT - AO had computed the penalty on income computed after relief provided by Hon ble CIT(A). However ld CIT(A) had allowed the relief by directing the AO to compute the penalty on the net addition sustained by Hon ble ITAT Jaipur. As settled law that on estimated addition, penalty under s. 271(1)(c) cannot be imposed because there can be no concealment in these cases, nor that the assessee has furnished inaccurate particulars of income. Any estimate is an opinion which is taken subjectively, when this difference of opinions leads to any addition, it cannot terminate into a penalty under s. 271(l)(c) . Further, it cannot be said that the process of imposition of penalty is automatic in the eventuality of estimated income. The mere fact of addition on an estimated basis, particularly when the assessment is made on the inference flowing from the inability of the assessee to establish the case pleaded by him, will not be sufficient for the purpose of imposition of penalty. The degree of proof required for the imposition of penalty is quite different from and is of a much higher order than that required for the purpose of making addition on an estimated basis. Besides, addition on the basis of estimate does not ipso facto supply evidence of concealment so as to justify penalty. Finding of concealment cannot be based on estimation alone. In the facts of the instant case, the factum of concealment was not proved beyond the shadow of doubt. No justification for imposition of penalty U/s 271(1)(c) of the Act in all the years under consideration - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
2. Specificity of the Notice under Section 274 read with Section 271(1)(c).
3. Imposition of Penalty based on Estimated Income.

Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the imposition of penalty under Section 271(1)(c) on the grounds that the penalty proceedings were initiated without specifying whether it was for concealment of particulars of income or for furnishing inaccurate particulars of income. The penalty was ultimately levied for furnishing inaccurate particulars of income. The assessee argued that this initiation and imposition of penalty were wrong, bad in law, invalid, and void ab initio. The reliance was placed on several judicial decisions including those from the Karnataka High Court and ITAT, which held that the notice must specify the exact limb for which the penalty is initiated.

2. Specificity of the Notice under Section 274 read with Section 271(1)(c):
The Tribunal observed that the notice issued under Section 274 read with Section 271(1)(c) did not specify the exact charge, i.e., whether the penalty was for concealment of income or furnishing inaccurate particulars. This lack of specificity rendered the notice defective. The Tribunal referenced multiple judgments, including those from the Karnataka High Court in the cases of CIT vs. Manjunatha Cotton & Ginning Factory and CIT vs. SSA’s Emerald Meadows, which emphasized that the notice must clearly state the grounds for penalty. The Tribunal also noted that the Supreme Court had dismissed the department’s SLP against the Karnataka High Court’s decision, thereby upholding the requirement for specificity in the notice.

3. Imposition of Penalty based on Estimated Income:
On merits, the assessee contended that the additions were made on an estimated basis and hence, no penalty should be imposed. The Tribunal agreed, noting that penalty under Section 271(1)(c) cannot be imposed on estimated additions as there can be no concealment or furnishing of inaccurate particulars in such cases. The Tribunal cited the Rajasthan High Court’s decision in Shiv Lal Tak vs. CIT, which held that penalty cannot be imposed on estimated income. The Tribunal also referenced ITAT Jodhpur’s decision in ITO vs. Gurunanak Oil Agency, which reiterated that penalty cannot be based on estimated additions.

The Tribunal concluded that the imposition of penalty is not automatic and must be considered on the basis of judicial determination, particularly when the assessment is based on estimated income. The Tribunal found no justification for the imposition of penalty under Section 271(1)(c) in all the years under consideration and thus, deleted the penalty.

Conclusion:
The appeals filed by the assessee were allowed on the grounds that the penalty notice under Section 274 read with Section 271(1)(c) was defective due to lack of specificity, and the imposition of penalty based on estimated income was not justified. The Tribunal ordered the deletion of the penalty for all the assessment years under consideration.