2021 (2) TMI 636 - AT - Income Tax

Penalty 271(1)(c) - Assessment completed u/s. 144 - NP Determination - rejecting the books of accounts and subsequently the net profit of the assessee was assessed @ 1% of the turnover declared - HELD THAT - The assessment was completed by estimating the profit. No penalty is leviable where the assessment was completed on the basis of the estimation of profit. In this regard, we find support of the decision of Hon'ble Gujarat High Court in the case of National Textiles 2000 (10) TMI 19 - GUJARAT HIGH COURT in which it is specifically held that the no penalty is liable to be sustainable where the profit was estimated. Taking into account all the facts and circumstances mentioned above, we set aside the finding of the CIT(A) on this issue and delete the penalty. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act - Estimation of profit for assessment - Confirmation of penalty by CIT(A) - Appeal against penalty imposition.

Analysis:

1. Penalty under section 271(1)(c) of the Income Tax Act:
The appellant contested the penalty of ?30,00,000 imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act. The penalty was levied due to the assessee's alleged involvement in claiming bogus/non-genuine commission/brokerage payments to a company. The appellant challenged the legality of the penalty before the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Estimation of profit for assessment:
The AO had rejected the books of accounts and assessed the profit at 1% of the gross turnover amounting to ?77,53,444 under section 144 of the Act. The assessment was based on the estimation of profit, leading to the initiation of penalty proceedings against the assessee. The penalty of ?3,00,000 was imposed after the appellant failed to cooperate with the AO during the assessment process.

3. Confirmation of penalty by CIT(A):
The CIT(A) confirmed the penalty imposed by the AO, leading the assessee to file an appeal challenging the penalty before the Appellate Tribunal. The appellant contended that the confirmation of the penalty on the basis of estimated assessed income was illegal, arbitrary, and unjustified. The grounds of appeal highlighted the failure of the CIT(A) to consider the proper facts of the case.

4. Appellate Tribunal's Decision:
After careful consideration of the arguments and case details, the Appellate Tribunal observed that no penalty is leviable when the assessment is completed based on the estimation of profit. Citing the decision of the Hon'ble Gujarat High Court in the case of National Textiles Vs. CIT, the Tribunal held that penalties are not sustainable when profit is estimated. Consequently, the Tribunal set aside the CIT(A)'s decision and deleted the penalty imposed on the assessee.

5. Outcome:
The appeal filed by the assessee was allowed by the Appellate Tribunal, overturning the penalty imposed by the lower authorities. The Tribunal's decision was pronounced in the open court on 09/02/2021, providing relief to the appellant in the matter of penalty under section 271(1)(c) of the Income Tax Act.