2022 (9) TMI 575 - AT - Income Tax

Penalty u/s. 271(1)(c) - estimated addition for alleged low G.P. - AO rejected the books of account and estimated @ 8% gross profit on the turnover - addition on account of brokerage made - HELD THAT - We note that the penalty was levied on the assessee on estimated addition and it is settled principle of law that no penalty u/s. 271(1)(c) can be levied on addition made on estimation. See Gopilon Texturising Pvt. Ltd. 2021 (4) TMI 860 - ITAT SURAT Thus we delete the penalty imposed by Assessing Officer u/s. 271(1)(c) of the Act. Appeal of the assessee is allowed.

Summary

Issues:
Assessment of penalty under section 271(1)(c) based on estimated additions made by the Assessing Officer.

Analysis:
The appeal pertains to the assessment year 2012-13 and challenges the penalty order passed under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer had rejected the books of account and estimated an 8% gross profit on the turnover, making an addition on brokerage expenses. The National Faceless Appeal Centre (NFAC)/CIT(A) later reduced the estimated disallowance from Rs. 50,08,257 to Rs. 5,00,000. The assessee contended that the penalty on estimated addition should not be imposed, seeking its quashing.

The CIT(A) analyzed the comparability of profit rates, considering factors like the quality of raw materials, scale of production, technology used, market share, turnover, and capital employed. The CIT(A) found the comparable cases referenced by the Assessing Officer were not ideal for drawing adverse conclusions against the assessee. The CIT(A) upheld a lumpsum addition of Rs. 5,00,000 on an estimate basis, providing relief to the assessee. The penalty was imposed based on the estimated addition, which is not permissible under settled law.

Referring to a precedent set by a Co-ordinate Bench of the Tribunal in a similar case, the Tribunal deleted the penalty imposed under section 271(1)(c) by the Assessing Officer. The Tribunal held that penalties cannot be levied on additions made on estimation basis. Therefore, the appeal of the assessee was allowed, and the penalty was deleted.

In conclusion, the Tribunal's decision was based on the principle that penalties cannot be imposed on additions made on estimation basis. The CIT(A) had already reduced the estimated disallowance, and the Tribunal followed the precedent to delete the penalty imposed by the Assessing Officer. The appeal was allowed in favor of the assessee.