2022 (9) TMI 1310 - AT - Income Tax

Penalty u/s 271(1)(c) - addition of income being estimated profit on the amount of sale - AO was not satisfied with the amount of income declared by the assessee and therefore he estimated the gross total income of the assessee at the rate of 8% of the total turnover - HELD THAT - As the quantum proceeding and the penalty proceeding are different. Any addition or disallowances made under quantum proceeding do not ipso facto empower the revenue authority to levy penalty under Section 271(1)(c) of the Act. Further the addition made was based on estimation and it settled position of law by the various Hon ble High court that no penalty under Section 271(1)(c) can be sustained in the case of estimated addition - See M/S. NORTON ELECTRONICS SYSTEMS PVT. LTD 2014 (2) TMI 606 - ALLAHABAD HIGH COURT Also in the case of CIT vs. Modi Industrial Corpn. 2009 (11) TMI 891 - PUNJAB HARYANA HIGH COURT has also held that where the assessment of the assessee was completed on estimated basis penalty under Section 271(1)(c) of the Act was not imposable with respect to the additions made on such estimate by the Assessing Officer. We are of the opinion that no penalty under Section 271(1)(c) of the Act can be sustained on account of addition made by the authorities below based on estimation. Accordingly, we hereby set-aside the order of the Ld. CIT(A) and direct the AO to delete the penalty levied by him - Decided in favour of assessee.

Summary

Issues:
- Appeal against penalty order under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2012-13.

Analysis:
1. The appeal was filed by the assessee against the penalty order passed under Section 271(1)(c) of the Income Tax Act, 1961. The assessee disputed the penalty imposed by the Ld. CIT(A) for Rs. 1,38,326.

2. The assessee's main contention was that the penalty was unjustified as similar disallowances in previous years did not attract penalties. The AO estimated the net profit of the assessee at 8% of the total turnover, leading to an addition to the total income. The penalty was confirmed at 100% of the tax sought to be evaded.

3. The Ld. CIT(A) upheld the penalty, stating that the assessee failed to provide supporting evidence for the declared gross profit and net profit ratios. The AO estimated the net profit at 8% due to the lack of documentation. The assessee did not challenge this during the assessment proceedings.

4. The Tribunal noted that the quantum proceeding and penalty proceeding are separate. It cited various High Court judgments to support the view that penalties cannot be imposed solely based on estimated additions. The Tribunal referred to cases such as CIT v. Norton Electronics System Pvt. Ltd and CIT vs. Modi Industrial Corpn. to emphasize this point.

5. Relying on legal precedents, the Tribunal concluded that no penalty under Section 271(1)(c) could be sustained for additions made on estimation. Therefore, the Tribunal set aside the Ld. CIT(A)'s order and directed the AO to delete the penalty imposed, ultimately allowing the assessee's appeal.

6. In the final judgment delivered on 14/09/2022 at Ahmedabad, the Tribunal ruled in favor of the assessee, emphasizing that penalties cannot be levied solely on estimated additions, as established by legal precedents.