2018 (10) TMI 2037 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance partially deleted by CIT(A) on ad hoc/estimated basis - HELD THAT - It is undisputed in the present appeal that the quantification of the alleged concealment/inaccurate particulars is only an estimate and it is settled law that penalty is not attracted on estimated additions. The Hon'ble Delhi High Court in the case of CIT vs. Aero Traders Pvt. Ltd., 2010 (1) TMI 32 - DELHI HIGH COURT has held that no penalty u/s 271(1)(c) can be imposed when income is Assessment year 2005-06 determined on estimate basis. Similar view has been taken in the case of Harigopal Singh vs. CIT 2002 (8) TMI 65 - PUNJAB AND HARYANA HIGH COURT and Subhash Trading Company 1995 (11) TMI 37 - GUJARAT HIGH COURT Thus, when the bedrock of instant penalty is estimated disallowance, the same cannot be sustained. Accordingly, we set aside the order of the Ld. CIT (Appeals) and direct the AO to delete the penalty. Appeal of the assessee stands allowed.

Summary

Issues involved:
1. Upholding of penalty under section 271(1)(c) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (A) for Assessment Year 2005-06.

Detailed Analysis:
The judgment pertains to an appeal filed by the assessee against the order of the Ld. CIT (Appeals)-24, New Delhi, upholding the penalty of Rs. 2,67,390 imposed under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2005-06. The initial assessment by the Assessing Officer involved disallowance of expenses claimed by the assessee related to income from hire charges and maintenance charges. The Ld. Commissioner of Income Tax (A) partially allowed the appeal, permitting 30% of the claimed expenditure and restricting the disallowance to Rs. 8,10,273. Subsequently, penalty proceedings resulted in the imposition of the penalty, which was upheld by the Ld. Commissioner of Income Tax (A) (para 2.0).

The key argument presented by the Ld. AR on behalf of the assessee was that the disallowance was made on an ad hoc basis without sufficient reasoning, and the rejection of additional evidence and examination of books of accounts by the Ld. Commissioner of Income Tax (A) was unjustified. It was contended that penalty under section 271(1)(c) cannot be sustained for ad hoc or estimated disallowances, citing settled legal principles (para 3.0).

In response, the Ld. Sr. DR supported the imposition of the penalty based on the decisions of the lower authorities and argued for upholding the penalty (para 4.0).

After considering the arguments, the ITAT analyzed the issue of the sustainability of penalty under section 271(1)(c) concerning partially deleted disallowances made on an ad hoc or estimated basis. The ITAT referred to legal precedents, including judgments from the Delhi High Court, Punjab & Haryana High Court, and Gujarat High Court, which established that penalties cannot be imposed on estimated additions. Citing the decision in CIT vs. Aero Traders Pvt. Ltd., the ITAT concluded that penalties cannot be upheld when the basis for penalty is an estimated disallowance. Consequently, the ITAT set aside the order of the Ld. CIT (Appeals) and directed the Assessing Officer to delete the penalty (para 5.0).

In conclusion, the ITAT allowed the appeal of the assessee, pronouncing the order on 29th October 2018 (para 6.0).