2020 (4) TMI 524 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition made on account of profit margin on sale of Mixer Grinder - penalty leviable on addition made on estimation of income - HELD THAT - AO estimated the profit @ 300/- per piece on sale of 1500 Mixer Grinder. Assessing Officer estimated the profit of 4, 50, 000/-. On appeal before the ld. CIT(A) the addition was upheld. However on further appeal before the Tribunal the addition was restricted to 3, 37, 500/- in 2016 (2) TMI 1274 - ITAT MUMBAI - We have further noted that in reply to the show cause the assessee stated that no penalty is leviable on addition made on estimation of income and relied upon the decision of Jodhpur Tribunal in ITO vs. Gurunanak Oil Agency 2013 (3) TMI 718 - ITAT JODHPUR . The contention of assessee was not accepted by Assessing Officer. The Assessing Officer levied the penalty @ 100% of the tax sought to be evaded. The ld. CIT(A) affirmed the action of Assessing Officer. There is no dispute that addition on which penalty was initiated was based on estimation basis. The addition was further reduced by Tribunal by allowing administrative and other expenses and estimated the profit @ 225/- per piece/per Mixer Grinder. It is settled position that no penalty is leviable on adhoc/estimated addition. Hence we direct the assessing officer to delete the entire penalty levied under section 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
1. Penalty under section 271(1)(c) for alleged concealment of income.
2. Validity of penalty imposition without specifying the limb under which it was imposed.
3. Distinction between penalty and assessment proceedings.
4. Levying penalty on estimated income.
5. Applicability of penalty on adhoc/estimated additions.

Analysis:
1. The appeal was against the penalty levied under section 271(1)(c) for alleged concealment of income. The appellant contended that no particulars of income were concealed, and the penalty was invalid as the Assessing Officer did not specify the limb under which it was imposed.

2. The Assessing Officer initiated the penalty based on an addition to the income of the assessee, which was later reduced on appeal. The appellant argued that penalty proceedings should be distinct from assessment proceedings, and the penalty was not justified as the income was estimated.

3. The case involved a discrepancy in the income declared by the assessee and the addition made by the Assessing Officer based on estimation. The Tribunal noted that no penalty should be levied on estimated additions made in the assessment order, as per settled law.

4. The Assessing Officer estimated the profit on the sale of Mixer Grinder, leading to the addition in income. The Tribunal, in its decision, reduced the addition by allowing expenses and estimating the profit at a lower amount per piece. The Tribunal emphasized that no penalty is leviable on adhoc or estimated additions.

5. Considering the arguments and precedents, the Tribunal directed the Assessing Officer to delete the penalty levied under section 271(1)(c) as the addition was based on estimation and no penalty should be imposed on such additions. The appeal of the assessee was allowed, and the penalty was set aside.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting that penalties should not be imposed on estimated additions to income and directed the deletion of the penalty levied under section 271(1)(c).