2020 (4) TMI 523 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Defective notice - non specification of charge in notice - not intimated the specific charge of Concealment of income or Furnishing inaccurate particulars of income - addition @ 1% of commission on accommodation entries - HELD THAT - AO found that there was total transaction during the year of ₹ 5.38 crore. AO made addition of 1% commission on the entire transaction. No further appeal was filed by assessee against the said addition in the quantum assessment. Penalty proceeding are separate and independent. Penalty under section 271(1)(c) is not automatic on the basis of additions made or part of the additions sustained in the appeal. In the assessment, the addition can be on the basis of presumption for making estimated addition. AO estimated the addition on account of commission income, on the basis of entire transaction during the year. The Assessing Officer levied the penalty @ 300% without specifying special reason for levying maximum penalty. CIT(A) restricted the penalty @ 100% of the tax sought to be evaded. In Gurunanak Oil Agency 2013 (3) TMI 718 - ITAT JODHPUR held that when the addition are based on estimated basis, the penalty under section 271(1)(c) could not be imposed. Also in CIT vs. Dhillon Rice Mills 2000 (9) TMI 10 - PUNJAB AND HARYANA HIGH COURT held that addition made on estimation basis would not automatically lead to conclusion that there was failure to return the correct income by mean of fraud or gross wilful neglect. No justification in levying the penalty under section 271(1)(c). - Decided in favour of assessee.

Summary

Issues Involved:
Appeal against penalty order under section 271(1)(c) for Assessment Years 2009-10 to 2012-13 based on accommodation entries provided by the assessee to a charitable trust, involving estimation of commission income and disputed penalty imposition.

Detailed Analysis:

Issue 1: Validity of Penalty Order under Section 271(1)(c)
The assessee challenged the penalty order under section 271(1)(c) on the grounds that the notice issued was mechanical without specifying the reason for initiation of penalty. The Assessing Officer had levied a penalty of 100% of the tax sought to be evaded, which the assessee contested. The Assessing Officer made additions based on estimated commission income, and the penalty was initially set at 300% but later reduced to 100% by the CIT(A).

Issue 2: Estimation Basis for Penalty Calculation
The Assessing Officer estimated the commission income at 1% of the total accommodation transaction receipt, resulting in additions to the assessee's income. The penalty was imposed without specifying special reasons for levying the maximum penalty. The CIT(A) restricted the penalty to 100% of the tax sought to be evaded. The Tribunal referred to precedents where penalties were not upheld when additions were based on estimation and there was no evidence of fraud or wilful neglect.

Conclusion:
The Tribunal found no justification for levying the penalty under section 271(1)(c) based on estimated additions. Citing previous judgments, the Tribunal directed the Assessing Officer to delete the penalty. The appeal of the assessee was allowed for all the years in question, maintaining consistency in the decision across the Assessment Years 2009-10 to 2012-13.