2012 (4) TMI 245 - AT - Income Tax

Levy of Penalty - Search and seizure operation u/s. 132 - consequent to the search, the assessee filed returns of income AO assessed that assessee not disclosed the income from bill discounting correctly for A.Ys. 2002-03 and 2003-04, thus made addition to income and levied penalty u/s. 271(1) (c) Held that - the penalty has been levied only on the basis of estimated income - there is no conclusive material to show that there is actual concealment of income - the assessee has accepted the addition only with the sole intention to avoid litigation and because the assessee has not gone in appeal against the quantum addition, it does not automatically qualify for levy of penalty and it does not entail the Department to levy penalty - when the Assessing Officer and the CIT(A) adopted figures of income on estimate basis and it is a case of difference of opinion between the assessee as well as the Department and that reason cannot be a basis for levy of penalty in the favour of assessee.

Issues Involved:
1. Validity of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Basis of income estimation and its impact on penalty.
3. Relevance of seized materials and statements recorded during search operations.
4. Discretionary power of the Assessing Officer in levying penalties.

Issue-wise Detailed Analysis:

1. Validity of Penalty Imposed under Section 271(1)(c):
The assessee was penalized under Section 271(1)(c) for not disclosing income accurately. The Assessing Officer (AO) determined the income based on seized materials, leading to an increase in the declared income. The assessee argued that the penalty was unjustified as the additions were based on estimates and not conclusive evidence. The Tribunal noted that the AO did not provide concrete evidence of concealment or furnishing inaccurate particulars of income. The Tribunal emphasized that the AO has discretionary power to levy penalties and should exercise it judiciously, referencing the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, which states that penalties should not be imposed merely because it is lawful to do so.

2. Basis of Income Estimation and Its Impact on Penalty:
The AO estimated the income based on the highest discounting charges found in the seized materials, ignoring instances where lower charges were recorded. The Tribunal observed that the income estimation was not uniform and varied depending on the customer. The Tribunal held that penalties should not be levied based on estimated income, especially when there is no conclusive proof of the exact amount of concealed income. The Tribunal cited several cases, including CIT v. Prem Das (No. 1) and Harigopal Singh v. CIT, to support the view that penalties are not justified when income is determined on an estimate basis.

3. Relevance of Seized Materials and Statements Recorded During Search Operations:
The AO relied on statements recorded during the search and seized materials to disallow expenditures and estimate income. The Tribunal noted that statements given during search operations should not be taken at face value without corroborative evidence. The Tribunal referenced multiple judgments, including CIT v. Shri Ramdas Motor Transport and Jaikisan R. Agarwal v. Asstt. CIT, which emphasize that statements made under duress or without documentary proof should not be used as the sole basis for penalties. The Tribunal concluded that the seized materials and statements were insufficient to prove concealment of income conclusively.

4. Discretionary Power of the Assessing Officer in Levying Penalties:
The Tribunal highlighted that Section 271(1)(c) provides the AO with discretionary power to levy penalties. The Tribunal stressed that this discretion should be exercised judiciously, considering all relevant circumstances. The Tribunal cited the Supreme Court's decision in CIT v. Suresh Chandra Mittal, which held that penalties should not be imposed if the assessee offers additional income to avoid litigation and the department does not prove concealment. The Tribunal also referenced CIT v. Khoday Eswarsa & Sons, which requires the department to show conscious and deliberate concealment of income before levying penalties.

Conclusion:
The Tribunal concluded that the penalties imposed on the assessee were not justified as the income was estimated and there was no conclusive evidence of concealment. The Tribunal emphasized the need for the AO to exercise discretion judiciously and not impose penalties merely because it is lawful to do so. The Tribunal allowed the appeals of the assessee and deleted the entire penalty.

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