2021 (6) TMI 808 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Addition on estimated basis - HELD THAT - AO Imposed penalty under section 271(1)(c) of the Act on ad hoc basis without adducing any evidence on record for concealment of income. Penalty under section 271(1)(c) of the Act is liable to be imposed only where the assessee has concealed its particulars of income or furnished inaccurate particulars. Action of making addition on ad hoc basis does not result into imposition of penalty u/s 271(1)(c) of the Act and hence cannot be termed as either concealment or furnishing of inaccurate particulars of income. We find support from the series of decisions by different High Courts as well the decision of the Co ordinate Benches of the Tribunal, wherein it was held that when addition is made on estimate basis, penalty is not sustainable in the eyes of law - Appeal filed by the assessee stands allowed.

Summary

Issues:
- Penalty levied under section 271(1)(c) of the Income Tax Act, 1961 for concealment of income.
- Applicability of penalty provisions when the addition is made on an estimate basis.

Analysis:

1. Penalty under section 271(1)(c):
The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, arising from an assessment year where the assessee declared total income but faced additions due to bogus purchases. The Assessing Officer initiated penalty proceedings based on the belief that the assessee concealed income particulars. However, the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the penalty, citing a significant issue. The CIT(A) observed that the penalty was initiated for furnishing inaccurate particulars of income but was levied for concealment of income, which was considered an incurable defect. Citing legal precedents, it was highlighted that penalty proceedings must align with the specific offenses mentioned in the Act, and discrepancies between the initiation and imposition of penalties render the penalty unsustainable in law.

2. Estimation Basis for Additions and Penalty Imposition:
The Tribunal considered whether penalty under section 271(1)(c) could be imposed when additions were made on an estimate basis without concrete evidence of concealment or inaccurate particulars of income. Relying on various decisions by High Courts and the Tribunal, it was established that when additions are made on an ad-hoc or estimate basis, the imposition of penalty is not sustainable. Legal precedents such as CIT v/s Norton Electronics Systems and Dilip N. Shroff v/s JCIT were cited to support the view that penalty cannot be imposed solely based on additions made through estimation. The Tribunal concluded that in the absence of active concealment of income and considering the legal precedents, the penalty levied by the Assessing Officer and confirmed by the CIT(A) was unjustified and thus deleted.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The decision underscored the importance of aligning penalty proceedings with specific offenses and highlighted that penalties cannot be imposed solely based on additions made on an estimate basis without concrete evidence of concealment or inaccurate particulars of income.