2016 (3) TMI 1060 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - addition on account of unexplained investment in cost of construction cannot be made on the basis of DVO s report - Held that - While dealing with the assessee s objections on the DVO s report, the AO has relied only on the comments of the DVO in response to the assessee s objections but has failed to give a final finding on the issue. Thus he has not dealt with the assessee s objections properly. This might have served the Revenue s purpose in the quantum proceedings but when it comes to imposition of penalty for furnishing of inaccurate particulars and/or concealment, utmost caution has to be exercised. The Department has not been able to substantiate as to how there has been furnishing of inaccurate particulars of income and/or concealment by the assessee when the AO has himself not brought any cogent material on record, apart from the DVO s report, to justify the imposition of penalty. The Hon ble High Court of Madras in CIT vs Apsara Talkies (1981 (11) TMI 2 - MADRAS High Court ) has held that, Penalty cannot be levied on the basis, merely of an estimate of cost of construction of a building built by an assessee with his funds. Thus the penalty imposed by the Assessing Officer under section 271(1)(c) was not sustainable - Decided in favour of assessee

Summary

Issues:
Penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 based on valuation differences by the DVO.

Analysis:

1. Valuation Discrepancy and Quantum Proceedings:
The case involved an appeal against the order deleting the penalty imposed under section 271(1)(c) of the Income Tax Act, based on valuation differences determined by the District Valuation Officer (DVO). The Assessing Officer had made additions to the total income of the assessee company due to discrepancies in the cost of construction of various divisions. The CIT (A) confirmed the quantum additions but directed the Assessing Officer to allow depreciation on the added amounts. The DVO's valuation was challenged by the assessee, leading to penalty proceedings.

2. Penalty Imposition and Legal Challenges:
In the penalty proceedings, the assessee contested the penalty imposition, arguing that the addition based solely on the DVO's report was insufficient to establish concealment of income. The assessee relied on various case laws to support the argument that without independent evidence, penalties under section 271(1)(c) should not be imposed. The CIT (A) deleted the penalty, leading to the Department's appeal.

3. Judicial Analysis and Decision:
The Tribunal analyzed the case, emphasizing that the penalty was solely based on the difference in asset valuation between the assessee's books and the DVO's report. It was noted that the Assessing Officer lacked independent evidence to support the penalty imposition apart from the DVO's valuation. The Tribunal cited legal precedents to highlight that penalties cannot be levied solely on estimates without concrete evidence of concealment. The Tribunal upheld the CIT (A)'s decision to cancel the penalty, stating that the penalty imposed was not sustainable due to the lack of substantial evidence supporting concealment or inaccurate particulars of income.

4. Final Verdict and Dismissal of Appeal:
Considering all aspects of the case, the Tribunal dismissed the Department's appeal, upholding the CIT (A)'s decision to cancel the penalty. The Tribunal concluded that the penalty under section 271(1)(c) was not justified based on the evidence presented, emphasizing the necessity of concrete proof to establish concealment or inaccurate particulars of income.