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- Justification of penalty under section 271(1)(c) in relation to the addition on estimate of wages - Validity of the imposition of penalty under section 271(1)(c) based on the income of the assessee Analysis: 1. The case involved a dispute regarding the imposition of a penalty under section 271(1)(c) of the IT Act, 1961, in connection with an addition on estimate of wages made during the assessment. The assessee claimed a reference of questions of law arising from the Tribunal's order confirming the penalty of Rs. 26,000. The dispute centered around the justification of imposing the penalty given the circumstances of the case. 2. The facts of the case revealed that the assessee had claimed a deduction of Rs. 2,26,039 as salary and wages paid to employees. However, the Income Tax Officer (ITO) found discrepancies and fraudulent inflation of wages in the assessee's books of account. The addition on estimate of wages was reduced through appeal processes to Rs. 26,000 by the Tribunal. 3. Apart from the addition of Rs. 26,000, penalty proceedings under section 271(1)(c) were initiated by the Assessing Officer (AO). The Commissioner of Income Tax (Appeals) [CIT(A)] later cancelled the penalty, but the Revenue challenged this decision before the Tribunal. The Tribunal directed the ITO to compute the penalty in respect of the Rs. 26,000 addition, leading to the questions of law raised by the assessee. 4. The representative of the assessee contended that the Tribunal's finding was merely a case of disallowance and not a false claim. It was argued that the Tribunal's decision raised questions of law, contrary to the departmental representative's opposition to such claims. 5. The Tribunal, after considering the submissions from both sides, concluded that the finding was based on evidence and did not give rise to any legal questions. The order of the CIT(A) cancelling the penalty was also cited, highlighting the lack of substantiation by the assessee regarding the expenditure claimed. The Tribunal found that the assessee failed to provide material facts to support its income computation, leading to the dismissal of the reference application. 6. Ultimately, the reference application was rejected, and no questions of law were found to arise from the Tribunal's decision. The dismissal of the application signaled the conclusion of the legal proceedings in this matter.
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