2019 (6) TMI 889 - AT - Income Tax

Penalty u/s 271(1)(c) - AO rejected books of account by invoking provisions of Section 145(3) and made trading addition - HELD THAT - Trading addition has been upheld by the Tribunal by estimating the GP rate at 15% on the alleged unverifiable purchases. It is settled proposition of law that merely confirmation of the trading addition made on estimate basis does not lead to the conclusion that assessee has furnished inaccurate particulars of income or concealed any income. Estimation is always on presumptions and assumptions and without proper and specific linking with any evidence in support of such estimation assessee cannot be fastened with liability of penalty. Accordingly, it is well settled that no penalty is leviable u/s 271(1)(c) on the basis of trading addition due to disturbance in the G.P. rate disclosed by the assessee. Therefore, additions were made in the assessment order not on the basis of any concealment being detected in assessment but only on Ad hoc Basis. Hence it cannot be deemed to concealed income for the purpose of penalty u/s 271(1)(c) in the case of CIT Vs. Super Metal Re-Rollers Pvt. Ltd. 2003 (9) TMI 51 - DELHI HIGH COURT - No merit in the penalty so imposed with regard to the addition upheld on estimation basis, therefore, we direct to delete the same. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty imposition under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2007-08 based on trading addition upheld by ITAT.

Analysis:
The appellant, engaged in jewellery trading and manufacturing, appealed against penalty imposition by the Assessing Officer (AO) for alleged inaccurate income particulars. The AO had rejected the books of account under Section 145(3) of the Act, leading to a trading addition of ?7,98,053. The ITAT upheld a trading addition of ?97,113 based on an estimated GP rate of 15% on unverifiable purchases. The AO imposed a penalty of ?32,688, confirmed by the CIT(A), prompting the appellant's appeal to the ITAT.

The appellant argued that the penalty was initiated for income concealment, not furnishing inaccurate particulars, citing a relevant legal decision. Additionally, it was contended that since the addition was made on an estimated basis, no penalty should apply, supported by a decision of the Jurisdictional High Court. Conversely, the Revenue supported the penalty imposition based on the ITAT's trading addition confirmation.

The ITAT examined the contentions and noted that estimation without specific evidence linking to the income does not warrant a penalty under Section 271(1)(c). It emphasized that mere confirmation of a trading addition based on estimates does not imply inaccurate income particulars or concealment. Referring to a Delhi High Court case, it established that additions on an ad hoc basis do not constitute concealed income for penalty purposes. Citing the Jurisdictional High Court's decision, the ITAT reiterated that penalty under Section 271(1)(c) requires corroborative evidence for concealment, which was lacking in this case.

Based on the analysis, the ITAT found no merit in the penalty imposed for the addition upheld on estimation basis and directed its deletion, ultimately allowing the appellant's appeal. The judgment was pronounced on 10th May 2019.