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2022 (11) TMI 275 - AT - Income TaxPenalty u/s.271(1)(c) or penalty u/s.271AAA - income of the assessee had been estimated by adopting the turnover of the assessee as recorded by the Principal because the assessee was doing raising of minerals ore as a contractor for Principal only - AO had treated 50% of the turnover in respect of the assessee and granted the assessee expenses of about 30% and had determined the net profit - HELD THAT - Penalty as levied by the AO is 100% of the tax sought to be evaded. The penalty leviable u/s.271AAA of the Act is only 10% of the undisclosed income. Thus, clearly the intention of the AO was to levy penalty u/s.271(1)(c) of the Act and it cannot be considered as a mistake on the part of the AO. A perusal of the provisions of Section 271AAA of the Act shows that when a search has been conducted on or after 1st June, 2007 but before 1st day of July, 2012 then for the specified previous year being the previous year which has ended before the date of search but the date of filing of the return u/s.139(1) of the Act has not expired and the assessee has not filed his return as also the year in which the search was conducted are to be considered only u/s.271AAA of the Act. The provisions of Section 271AAA(3) of the Act specifically excludes the provisions of Section 271(1)(c) of the Act for the said two specified previous years. The search in assessee s case having been conducted on 27.09.2008. Two specified previous years are AYs.2008-2009 2009- 2010. For these two assessment years, the penalty, if at all leviable, was u/s.271AAA of the Act and not u/s.271(1)(c) of the Act. Consequently, on this ground, the penalty as levied by the AO and as confirmed by the CIT(A) for the said two assessment years, stands deleted. Penalty u/s 271(1)(c) - defective notice u/s 274 - HELD THAT - The penalty admittedly is leviable on the facts of each case. A perusal of present case clearly shows that the estimation of income has been done by the assessee when it filed its return insofar as books are not available. Estimation has been done by the AO when making the assessment by following a particular method of estimation. This method of estimation by the AO has been disturbed by the ld. CIT(A) who has applied an alternative method of estimation of the assesee s income. The coordinate bench of the Tribunal went further to revise the estimation as done by the ld. CIT(A). A perusal of the assessment order clearly shows that the estimation as done by the AO in the assessment order is not on the basis of any seized documents but by interpretation and presumption drawn out of the various seized documents. Thus, at no stage, it can be said that there has been a contumacious conduct on the part of the assessee, which can lead to the conclusion of concealment of income. In the circumstances, as the income of the assessee has been estimated at all stages and there is no evidence of concealment of income at any of its stages, right from the filing of return to the appeal before the Tribunal, we are of the view that no penalty is leviable. It is further recognised that when there are catena of decision both in favour the assessee and against the assessee, the view in favour of the assessee is to be adopted as has been held by the Hon ble Supreme Court in the case of Vegetable Products 1973 (1) TMI 1 - SUPREME COURT As no concealment has been proved in the case of the assessee, the penalty as levied by the AO and confirmed by the ld. CIT(A) stands deleted. Our decision to delete the penalty also gets support from the fact that the AO has not struck out inappropriate words in the paragraphs of notice issued u/s.274/271(1)(c) of the Act and on account of the fact that income of the assessee has been assessed only on estimation basis and no evidence of concealment of income has been found in the case of the assessee.
Issues Involved:
1. Validity of penalty levied under Section 271(1)(c) of the Income Tax Act for concealment of income. 2. Applicability of Section 271AAA for penalties in assessment years 2008-2009 and 2009-2010. 3. Impact of non-striking off inappropriate words in penalty notices. 4. Legitimacy of penalty on estimated income. Issue-wise Detailed Analysis: 1. Validity of Penalty under Section 271(1)(c): The assessee's income was estimated by the Assessing Officer (AO) based on the turnover recorded by Serajuddin & Co., with 50% of the turnover attributed to the assessee. The AO allowed expenses of about 30% and determined the net profit, treating 50% of the turnover as returned to Serajuddin & Co. and making an addition on a protective basis. The balance was treated as substantive in the assessee's hands. The AO levied a penalty under Section 271(1)(c) for concealment. However, the Tribunal noted that the income was estimated at all stages, with no conclusive proof of concealment. The Tribunal referenced several High Court decisions, including Aero Traders (P.) Ltd., Sangrur Vanaspati Mills Ltd., and Subhash Trading Co., which held that penalties based on estimated income are not justified. The Tribunal concluded that no penalty is leviable as the income was estimated and there was no evidence of concealment. 2. Applicability of Section 271AAA: For assessment years 2008-2009 and 2009-2010, the penalties were levied under Section 271(1)(c), whereas they should have been levied under Section 271AAA due to the search conducted on 27.09.2008. Section 271AAA applies to searches conducted after 01.06.2007, and the penalty is 10% of the undisclosed income. The Tribunal found that the AO's intention was to levy penalty under Section 271(1)(c), which was incorrect. Consequently, the penalties for these years were deleted. 3. Non-striking off Inappropriate Words in Penalty Notices: The Tribunal observed that the AO did not strike off inappropriate words in the penalty notices issued under Section 274/271(1)(c). This non-striking off deprived the assessee of a fair opportunity to explain its stand, violating the principle of natural justice. The Tribunal referenced the Supreme Court decision in Dilip N. Shroff, which held that non-striking off inappropriate words invalidates the penalty notice. Therefore, the penalties for assessment years 2004-2005 to 2007-2008 were deleted. 4. Legitimacy of Penalty on Estimated Income: The Tribunal noted that the income estimation was done by the AO based on interpretations and presumptions from seized documents, not direct evidence. The estimation method was revised by the CIT(A) and further by the Tribunal, indicating no contumacious conduct by the assessee. The Tribunal emphasized that penalties are not justified when income is estimated and no concrete evidence of concealment is found. The Tribunal cited the Supreme Court decision in Vegetable Products, which supports adopting the view in favor of the assessee when there are conflicting decisions. Consequently, the penalties for all assessment years were deleted. Conclusion: The Tribunal allowed all appeals of the assessee, deleting the penalties levied under Section 271(1)(c) for assessment years 2004-2005 to 2009-2010. The decisions were based on the lack of concrete evidence of concealment, incorrect application of penalty provisions, and procedural lapses in issuing penalty notices.
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