2017 (1) TMI 993 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - addition in respect of shortage in stock and unrecorded investment - Held that - In the present case, we find that the Assessing Officer during assessment proceedings has made addition in respect of shortage in stock and unrecorded investment on estimation. It was pointed by the ld. DR that the assessee had agreed for addition. Addition on the basis of estimation may be sustainable in assessment proceedings but criterion and yardstick for imposing penalty u/s. 271(1)(c) of the Act are different from these applied for making the additions. It is a well settled law that no penalty u/s. 271(1)(c) should be levied where additions are made on estimations. Further, no penalty u/s. 271(1)(c) can be levied merely on the ground that the assessee has agreed for the addition. - Decided in favour of assessee

Summary

Issues:
Levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 based on additions made during assessment proceedings.

Analysis:
1. The appeal was against the order confirming the penalty u/s. 271(1)(c) of the Act for the assessment year 2008-09. The assessee, engaged in seed manufacturing, faced a search action revealing stock shortage and unrecorded investments. The Assessing Officer made an ad hoc addition of ?5,11,000 based on estimations, leading to the penalty imposition.

2. The assessee argued that penalty cannot be levied solely based on additions made during assessment proceedings, especially when they are estimations. The penalty and assessment proceedings are distinct, as held in various judicial precedents. The Hon'ble Supreme Court and Bombay High Court emphasized the independent nature of assessment and penalty proceedings.

3. The Assessing Officer's addition was on estimation, and the assessee's agreement for the addition doesn't automatically justify penalty imposition. The Tribunal cited a similar case where the penalty was canceled as the additions were based on estimations and the assessee agreed to them only to avoid further disputes.

4. The Tribunal emphasized that the criterion for imposing penalty differs from that for making additions on estimations. It was noted that penalty cannot be levied solely because the assessee agreed to the addition during assessment proceedings. The Tribunal referred to a case where the penalty was canceled as the additions were not sufficient to penalize the assessee for concealment of income.

5. Considering the legal principles and precedents, the Tribunal set aside the order and directed the Assessing Officer to cancel the penalty. The appeal of the assessee was allowed, emphasizing that not every addition during assessment automatically leads to the levy of penalty.

This detailed analysis showcases the legal intricacies involved in the judgment, highlighting the key arguments and decisions made by the Tribunal based on established legal principles and precedents.