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2022 (2) TMI 181 - AT - Income TaxPenalty u/s 271(1)(c) - ad-hoc addition/disallowance - disallowance of 25% of the various expenses claimed by the assessee - HELD THAT - The only reason given by the AO for making such disallowance on estimate or on ad-hoc basis was the unverifiable element involved in the said expenses compliance of TDS provisions etc. It is noted that while making such disallowance the AO has not pointed out even a single instance of any bogus expenditure claimed by the assessee. He has also not brought any adverse material on record to establish that the assessee was guilty of concealing of particulars of its income or furnishing inaccurate particulars of such income. We are of the view that the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act and sustained by the learned CIT(A) in respect of additions made on estimated basis on account of disallowance of expenses on ad-hoc basis is not sustainable; and cancelling the same we allow this appeal of the assessee.
Issues Involved:
1. Delay in filing the appeal. 2. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 on estimated disallowance of expenses. Issue-wise Detailed Analysis: 1. Delay in Filing the Appeal: The assessee's appeal was delayed by 1271 days. The delay occurred because the assessee inadvertently filed an appeal against the CIT(A) order dated 17.10.2014 instead of the order dated 25.07.2014, which confirmed the penalty. The ITAT acknowledged the reason for the delay, noting that the mistake was realized during a hearing, and the ITAT had directed the assessee to file a separate appeal with an application for condonation of delay. The Tribunal found the reason for the delay satisfactory and condoned it, allowing the appeal to proceed on its merits. 2. Legitimacy of the Penalty under Section 271(1)(c): The assessee, a company engaged in IT-enabled services, had its return of income scrutinized, resulting in an ex-parte assessment under Section 144 due to non-compliance with notices. The Assessing Officer (AO) determined a total income of ?1,59,41,190/- after disallowing 25% of expenses on an estimated basis, citing unverifiable elements and TDS compliance issues. Consequently, a penalty of ?55,00,000/- was imposed under Section 271(1)(c). The CIT(A) upheld the penalty, noting that the assessee failed to substantiate its expenses during both quantum and penalty proceedings, and relied on the ITAT Allahabad decision in R.K. Brothers, which allowed penalty on estimated income concealment. However, upon rectification under Section 154, the CIT(A) reduced the penalty to ?8,26,709/-. The assessee argued that the penalty was unjustified as the disallowance was based on estimation without concrete evidence of concealment or inaccurate particulars. The assessee cited the Gujarat High Court decisions in Subhash Trading Co. and Valimkbhai H. Patel, which held that penalties cannot be imposed on estimated disallowances without evidence of concealment. The Departmental Representative contended that the lack of compliance justified the ad-hoc disallowance and consequent penalty, as upheld by the CIT(A). The Tribunal reviewed the case and relevant judicial precedents, including decisions from the Punjab & Haryana High Court and various ITAT benches, emphasizing that penalties under Section 271(1)(c) require concrete evidence of concealment or inaccurate particulars, not merely estimated disallowances. The Tribunal noted that the AO did not provide specific instances of bogus expenses or adverse material proving concealment. Based on the legal position and facts, the Tribunal concluded that the penalty was unsustainable and allowed the assessee's appeal, canceling the penalty imposed. Conclusion: The Tribunal condoned the delay in filing the appeal and ruled that the penalty under Section 271(1)(c) was not justified for disallowances made on an estimated basis without concrete evidence of concealment or inaccurate particulars. The appeal was allowed, and the penalty was canceled.
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