2016 (11) TMI 448 - AT - Income Tax

Penalty u/s 271(1)(c) - addition made on the basis of estimation - Held that - As per the settled law penalty proceedings are different from assessment proceedings because the standard of proof required for imposition of penalty is different from that on which an addition could be maintained. Mere addition to the income of the assessee does not mean that the assessee has concealed. Thus this is not a fit case where penalty can be imposed under section 271(1)(c) of the Act for concealment of income or for furnishing incorrect particulars of income. - Decided in favour of assessee

Summary

Issues:
Appeal against penalty under section 271(1)(c) - Estimation basis for addition of commission income - Distinction between assessment and penalty proceedings.

Analysis:
1. The appeals were filed against two orders dated 22/01/2015 by the Ld. CIT(Appeals)-39, Mumbai for the Asst. Year 2002-03 and 2008-09. The assessees, being members of the same family, had common issues, so the appeals were clubbed and heard together. The primary issue revolved around the penalty under section 271(1)(c) imposed by the AO based on estimation of commission income.

2. In the case of ITA No. 2639/Mum/2015 for A.Y. 2002-03, the AO estimated commission income at 6% of sales, later reduced to 0.6% by the ITAT. The assessee challenged the penalty, arguing that penalty cannot be levied solely on estimation basis without tangible material. The AR cited various cases to support the contention that penalty under section 271(1)(c) is not applicable in such scenarios.

3. The AR emphasized that penalty cannot be imposed where the basis of estimation has been substantially changed by the Tribunal, as the standard of proof for penalty is different from that of assessment. Citing legal precedents, it was argued that when additions are made on an estimate basis, penalty under section 271(1)(c) cannot be justified. The Tribunal agreed with the AR's arguments and set aside the penalty order.

4. Similarly, in ITA No. 2638/Mum/2015 for A.Y. 2008-09, the issue of penalty under section 271(1)(c) based on estimation was challenged. Following the decision in the earlier case for A.Y. 2002-03, the Tribunal set aside the penalty order for the same reasons.

5. The Tribunal concluded that penalty proceedings are distinct from assessment proceedings, and the imposition of penalty solely on estimation basis without concrete evidence is not justified. Relying on legal principles and precedents, the Tribunal allowed both appeals, setting aside the penalty orders in favor of the assessees.

6. In summary, the Tribunal's decision focused on the distinction between assessment and penalty proceedings, emphasizing that penalties cannot be imposed solely on estimation basis without tangible material. The legal precedents cited supported the Tribunal's decision to set aside the penalty orders in both cases, providing relief to the assessees.