2024 (3) TMI 725 - AT - Income Tax

Penalty u/s 271(1)(c) - additions made in the assessment order u/s 143(3) on estimate basis - HELD THAT - Following guideline from the decision of Dilip N. Shroff 2007 (5) TMI 198 - SUPREME COURT , Hon ble Madras High Court decided in CIT vs. Cafco Syndicate Shipping Co 2007 (7) TMI 35 - HIGH COURT, MADRAS that disallowance on the ground that the expenditure was huge or that some vouchers were not available is not good enough to justify penalty in absence of anything more to suggest that the claim was not bonafide. There is no evidence in the case of the assessee that the claim was malafide. There is nothing on record that inadmissible expenses were claimed or that the expenses were incurred for purposes other than assessee s business. AO imposed the impugned penalty on the assessee for concealing particulars of his income. This is contrary to the facts on record. AO proceeded to compute the income of the assessee on the basis of the particulars as per tax audit report of gross turnover, gross profit, GP rate, depreciation, net profit and net profit rate. AO accepted the income declared but disallowed 10% of the claim of expenses on the turnover on the basis of details furnished during the course of assessment proceedings. Therefore, there is no concealment of particulars of income by the assessee so as to justify levy of the impugned penalty. As observed that the CIT(A) has not given any finding on the contention raised before him by the assessee that it was incorrect on the part of the AO to hold that the assessee concealed his income only on the basis of disallowance of expenses on estimate. CIT(A) is silent on the plea of the assessee contained in statement of facts also that the assessee withdrew his quantum appeal challenging the said disallowance on the assurance from the then AO that no penalty would be levied. No attempt at all has been made by the CIT(A) to have this plea verified. CIT(A) did not give any credence to the above contention and plea of the assessee for no valid reasons. Appeal of the assessee is allowed.

Summary

Issues:
The judgment involves the confirmation of penalty under section 271(1)(c) by the Ld. CIT(A) for the Assessment Year 2013-14, based on the concealment of income and the subsequent appeal by the assessee challenging the levy of penalty.

Details:
The assessee, engaged in trading and manufacturing of timber products and firewood, initially declared income of Rs. 4,82,499/- which was revised to Rs. 6,34,500/-. During assessment proceedings, the Ld. AO disallowed 10% of total expenses and profit and loss account amounting to Rs. 20,02,130/- and added it to the income of the assessee under section 143(3) of the Income Tax Act, 1961. Subsequently, penalty proceedings were initiated under section 271(1)(c) for concealing income.

The assessee requested to keep the penalty proceedings in abeyance till the disposal of the quantum appeal. However, the penalty of Rs. 5,38,180/- was imposed by the Ld. AO for concealing income. The assessee challenged this penalty before the Ld. CIT(A) on the grounds that the additions in the assessment were based on estimates and no evidence of concealment was provided.

The Ld. CIT(A) confirmed the penalty, stating that the reply uploaded had no relevance to the levy of penalty and no evidence was presented to support the plea raised by the assessee. The Tribunal observed that the disallowance of expenses was on an estimate and adhoc basis, not due to concealment of income. Referring to legal precedents, the Tribunal held that the disallowance did not justify the penalty under section 271(1)(c).

The Tribunal noted that the Ld. AO computed income based on particulars from the tax audit report and disallowed expenses on an estimate basis. It was concluded that there was no concealment of income justifying the penalty. The Ld. CIT(A) did not address the contention raised by the assessee regarding the incorrectness of the concealment charge, leading to the deletion of the penalty.

In conclusion, the Tribunal held that the impugned penalty was not justified and subsequently deleted it, allowing the appeal of the assessee.

Order pronounced in the open court on 14th March, 2024.