2021 (11) TMI 575 - HC - Income Tax

Levy of penalty u/s 271 (1) (c) on estimated income by the assessing authority - HELD THAT - Section 271(1)(c) deals with levy of penalty in case where any person has concealed the particulars of his income or furnished inaccurate particulars of such income resulting in evasion of tax - what is the penalty payable - whether on total tax assessed or on the tax evaded by the assessee. The Tribunal treated the penalty amount - The plain meaning of the section leads to the conclusion that the criteria for determination of penalty is the tax sought to be evaded but not the total tax payable by the assessee. As already noticed from the computation statement in Annexure-A the total tax payable by the assessee - The difference of tax is lesser than that which was found to have been evaded by the assessee - the penalty shall be quantified or qualified by such figures. For the said purpose we are persuaded not to remit the matter to any of the authorities. From the details available in the record we have heard the counsel on the quantum of penalty it has been stated that penalty of 100% works out to 5, 62, 918/-. As noted at the beginning of our discussion the questions of law involve consideration of Section 271(1)(c) of the Act and the error of fact in appreciating what is the actual tax sought to be evaded by the assessee. The discussion is concluded by holding that the penalty is determined on the amount of tax sought to be evaded by the concealment of income etc.. but not on the total tax chargeable on the assessee. - Decided in favour of assessee.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding penalty proceedings for Assessment Year 2010-11 under Section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. The appellant, M/s. Kite Maker, contested the order of the Income Tax Appellate Tribunal concerning penalty proceedings for the Assessment Year 2010-11. The issues revolved around the return filed by the appellant for that year, with substantial questions of law arising under Section 271(1)(c) of the Income Tax Act, 1961.

2. The circumstances leading to the appeal were centered on the penalty proceedings for the omission or commission of the appellant in disclosing income or paying tax for the said assessment year. The Assessing Officer added suppressed income and applied for TDS deducted by the appellant. The penalty was levied under Section 271(1)(c) of the Act, amounting to ?20,51,700. Subsequent appeals resulted in the Tribunal directing a minimum penalty of 100% at ?10,25,850, leading to the current appeal by the appellant.

3. The substantial questions of law raised for decision focused on whether the penalty could be levied on "estimated income" and if the appellant was entitled to credit for tax deducted at source, which was not considered during the penalty proceedings.

4. The arguments presented by the appellant's counsel emphasized that the penalty should be based on the tax evaded by the assessee, not the total tax payable. Section 271(1)(c) was cited to support the contention that the penalty should be proportionate to the tax sought to be evaded, not exceeding three times that amount.

5. On the other hand, the respondent's counsel argued that the Commissioner's view was contrary to the Act's mandate, and no grounds for interference were established. The main issue for consideration was the quantum of penalty payable by the appellant.

6. The High Court, after considering the arguments and perusing the record, concluded that the penalty should be determined based on the tax sought to be evaded by the assessee, not the total tax payable. Therefore, the penalty was quantified at 100% of the tax sought to be evaded, amounting to ?5,62,918. The Court ruled in favor of the appellant, allowing the Income Tax Appeal and awarded no costs.

This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive understanding of the case and the court's decision.