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2020 (9) TMI 758 - AT - Income TaxPenalty u/s 271(1)(c) - defective notice - non striking off the irrelevant portion of the printed show cause notice - addition on account of application of G.P. Rate of 8% - HELD THAT - Definite finding is required to be recorded by the Revenue Officer for reaching to a conclusion with regard to concealment of income or furnishing of inaccurate particulars of income and without any such findings, there cannot be any question of imposition of any penalty. The mere revision of income to a higher figure by the AO does not automatically warrant an inference of concealment of income by the assessee. Addition to the income of the assessee in this case is based on estimate basis whereas the concealment in our views implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. As in this case the additions were made on the basis of estimation and as discussed in KR. CHINNI KRISHNA CHETTY 1998 (6) TMI 5 - MADRAS HIGH COURT the penalty cannot be levied on the basis of estimated additions - Decided in favour of assessee.
Issues Involved:
1. Validity of the order passed by the AO under Section 271(1)(c) of the Income Tax Act, 1961 without striking off the irrelevant portion of the printed show cause notice. 2. Whether the order passed by the AO under Section 271(1)(c) of the Income Tax Act, 1961 is against the principles of judicial consistency. 3. Whether the order passed by the AO under Section 271(1)(c) of the Income Tax Act, 1961 is void ab initio due to lack of recorded satisfaction regarding concealment of income or furnishing inaccurate particulars of income. 4. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of the Order Passed by the AO under Section 271(1)(c) Without Striking Off the Irrelevant Portion of the Show Cause Notice: The assessee argued that the order passed by the AO under Section 271(1)(c) is bad in law as the AO did not strike off the irrelevant portion of the printed show cause notice. However, during the course of hearing, the assessee did not press this ground, and hence, it was dismissed as not pressed. 2. Judicial Consistency: The assessee contended that the order passed by the AO under Section 271(1)(c) is against the principles of judicial consistency. This ground was also not pressed during the hearing and was dismissed. 3. Void Ab Initio Due to Lack of Recorded Satisfaction: The assessee claimed that the order passed by the AO under Section 271(1)(c) is void ab initio as no satisfaction was recorded regarding concealment of income or furnishing inaccurate particulars of income. This ground was not pressed during the hearing and was dismissed. 4. Legitimacy of the Penalty Imposed under Section 271(1)(c): The main contention was regarding the penalty imposed by the AO under Section 271(1)(c). The assessee argued that the penalty was imposed based on estimated additions and not on any specific finding of concealment or inaccurate particulars of income. The AO had applied a GP rate of 8% based on earlier history, which was an estimate against the declared GP rate of around 5.2%. The Tribunal observed that the AO did not record any findings that the assessee furnished inaccurate particulars of income or concealed income. The addition was based on the estimation method under Section 145(3) of the Income Tax Act, 1961. The Tribunal noted that penalty cannot be levied on estimated additions. It cited several case laws supporting the view that penalty under Section 271(1)(c) is not justified when the addition is based on estimation. The Tribunal emphasized that a definite finding of concealment or furnishing inaccurate particulars of income is necessary for imposing a penalty. The Tribunal referred to the decision of the Hon'ble Madras High Court in CIT vs K.R. Chinni Krishna Chetty, which stated that mere revision of income to a higher figure does not automatically warrant an inference of concealment. Based on the facts and circumstances, the Tribunal concluded that the additions were made on an estimated basis, and hence, no penalty is leviable. The Tribunal allowed the ground of appeal raised by the assessee and deleted the penalty levied by the AO and confirmed by the CIT(A). Application to Other Assessment Years: For the assessment years 2005-06, 2006-07, 2007-08, and 2009-10, the Tribunal applied the same reasoning and conclusions as in the assessment year 2004-05. The Tribunal allowed the ground of appeal for these years as well, thereby deleting the penalties imposed. Conclusion: The Tribunal allowed the appeals filed by the assessee partly, deleting the penalties levied under Section 271(1)(c) of the Income Tax Act, 1961, for all the assessment years in question. The order was pronounced in the open court on 14/09/2020.
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