2021 (5) TMI 437 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee has furnished inaccurate particulars by not accounting the income earned from the execution of contract works and earned undisclosed income which is not disclosed to the department - HELD THAT - As penalty has been imposed by the AO on the ground of non-disclosure of the contract works and addition made on estimated basis, on which penalty has been imposed by the AO for furnishing of inaccurate particulars of income during the year. Penalty cannot be levied on the estimate addition. We set aside the order of the CIT(A) and direct the AO to cancel the penalty levied u/s 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Estimation of income from contract receipts.
3. Initiation and justification of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
4. Validity of penalty notice under Section 274 read with Section 271(1)(c).
5. Penalty on estimated additions.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal suffered from a delay of 353 days. The assessee filed a petition for condonation of the delay citing ill health. The Tribunal referenced case laws such as *Collector Land Acquisition vs Mst. Katiji & Ors* and *University of Delhi Vs. Union of India*, which support condonation of delay for substantial justice. The Tribunal held that the delay was neither intentional nor deliberate but due to circumstances beyond the assessee's control, and thus, condoned the delay.

2. Estimation of Income from Contract Receipts:
The assessee, engaged in wholesale trade of electrical goods, did not reflect contract receipts amounting to ?1,88,78,974 in the Profit & Loss Account. The Assessing Officer (AO) estimated the income at 12.5% of the contract receipts, resulting in an income of ?23,59,872. On appeal, the CIT(A) directed the AO to compute the net profit at 8% of the contractual receipts.

3. Initiation and Justification of Penalty Proceedings under Section 271(1)(c):
The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income and earning undisclosed income. The assessee argued that the income was assessed on an estimated basis, the tax liability was covered by TDS, and the business was conducted by associates. The AO rejected these submissions and levied a penalty of ?4,96,945.

4. Validity of Penalty Notice under Section 274 read with Section 271(1)(c):
The assessee contended that the penalty notice did not specify whether the proceedings were for concealment of particulars of income or furnishing inaccurate particulars. The Tribunal noted that the notice issued by the AO was not filed on record, and thus, did not adjudicate this legal ground.

5. Penalty on Estimated Additions:
The Tribunal observed that the penalty was imposed on the basis of non-disclosure of contract works and additions made on an estimated basis. The Tribunal cited several judgments, including *K.P. Varghese v ITO* and *CIT v. Reliance Petroproducts (P) Ltd.*, which established that penalty cannot be levied on estimated additions. The Tribunal emphasized that no concrete evidence was provided to prove that the assessee concealed income or furnished inaccurate particulars. The Tribunal concluded that the penalty imposed on estimated additions was not justified.

The Tribunal referenced various case laws, including *CIT v. Sangrur Vanaspati Mills Ltd.*, *CIT v. Ravail Singh & Co.*, and *Price Waterhouse Coopers (P) Ltd. v. CIT*, to support the view that penalty under Section 271(1)(c) is not leviable for additions made on an estimated basis. The Tribunal also noted that the assessee had disclosed all facts and particulars to the Revenue Department, and the omission of ?45 lakhs in the original return was an inadvertent error.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to cancel the penalty levied under Section 271(1)(c). The appeal of the assessee was allowed, and the penalty was deleted. The judgment was pronounced in the open court on 3rd May, 2021.