2017 (2) TMI 1088 - AT - Income Tax

Penalty u/s 271(1)(c) - additions on the basis of the material gathered by the department during the course of the survey proceedings - non submission of incriminating material - Held that - The estimation of the income of the assessee firm was duly justified, but then in light of the fact that the lower authorities till date had failed to place on record any such incriminating material gathered during the course of the survey proceedings, which could establish beyond any scope of doubt the concealment of income on the part of the assessee, and therein irrebutably prove that the financial statements of the assessee firm so filed with the department were far from the true state of affairs, the levy of penalty u/s 271(1)(c) cannot be justified. We are rather surprised to find that despite tall claims that substantial corroborative evidence in the nature of incriminating documents was unearthed by the department during the course of the survey proceedings and Xerox copies of the same had been obtained during the course of the said proceedings, the A.O however only during the course of the original assessment proceedings had only referred to and acted upon a set of 4 documents which were obtained by the survey officials during the course of the survey proceedings for justifying the addition of ₹ 15 lac in A.Y. 1997-98 and ₹ 20 lac in A.Y. 1998-99, which too were undisputedly found to be relatable to the period relevant to A.Y. 1999-2000. We are unable to understand that despite specific directions by the Tribunal to the A.O to make additions on the basis of the material gathered by the department during the course of the survey proceedings, what stopped him from so doing. We are of the considered view that such failure on the part of the lower authorities to make and support additions in the hands of the assessee by placing on record material obtained during the course of the survey proceedings, can logically only be explained for the reason that there is no such incriminating material pertaining to the year under consideration lying available with the department. We are thus of the considered view that in the backdrop of the aforesaid facts, though on the basis of the conduct of the assessee an estimated addition was justifiably called for and as such made in its hands, but falling short of any such corroborative material which could inescapably and rather irrebutably prove the factum of concealment of income on the part of the assessee firm, the levy of penalty under Sec. 271(1)(c) as regards the said addition which is solely based on a simpliciter estimation of the income of the assessee by the CIT(A), cannot be justified. A perusal of the order of the CIT(A) reveals beyond any scope of doubt that the assessee had only brought to the notice of the CIT(A) the said serious infirmity in the penalty order of the A.O, but had at no stage given up its main contention that no penalty u/s 271(1)(C) was called for in its case. Thus in totality of the facts of the present case, we are of the considered view that the penalty imposed in the hands of the assessee u/s 271(1)(c) cannot be sustained, and therefore set aside the same. The penalty imposed in the hands of the assessee under Sec. 271(1)(c) is thus vacated. - Decided in favour of assessee

Summary

Issues Involved:
1. Confirmation of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of assessment based on retracted statements and absence of corroborative material.
3. Justifiability of penalty on estimated income.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levied Under Section 271(1)(c) of the Income-tax Act, 1961:
The appellant challenged the CIT(A)'s decision to confirm the penalty of ?2,43,488/- levied by the Assessing Officer (A.O) under Section 271(1)(c) for estimated undisclosed income. The Tribunal noted that the A.O had initially assessed the income based on a statement made by a partner during survey proceedings, which was later retracted. The Tribunal had previously directed the A.O to estimate the income based on material gathered during the survey and not solely on the retracted statement. However, the A.O failed to comply and reassessed the income based on the same retracted statement, leading to the imposition of the penalty. The CIT(A) later corrected this by estimating the income at 8% of gross receipts, resulting in an income of ?2,43,488/- and upheld the penalty based on this estimation.

2. Validity of Assessment Based on Retracted Statements and Absence of Corroborative Material:
The Tribunal observed that the A.O's assessment was primarily based on a partner's statement made during the survey, which was retracted the next day. The Tribunal had explicitly directed the A.O to base the assessment on material obtained during the survey and to confront the assessee with this material. The A.O, however, disregarded these directions and relied solely on the retracted statement, without presenting any corroborative material. The CIT(A) recognized this non-compliance and adjusted the assessment to an estimated income based on gross receipts, which was upheld by the Tribunal. The Tribunal highlighted that the A.O's failure to adhere to the directions and the absence of incriminating material from the survey proceedings weakened the basis for the penalty.

3. Justifiability of Penalty on Estimated Income:
The Tribunal scrutinized the justification for imposing a penalty under Section 271(1)(c) on the basis of estimated income. It was noted that the estimation of income at 8% of gross receipts by the CIT(A) was a corrective measure due to the A.O's non-compliance with Tribunal directions. The Tribunal emphasized that penalties cannot be justified solely on income estimations without corroborative evidence of concealment. The Tribunal cited the Rajasthan High Court's judgment in Shiv Lal Tak Vs. CIT, which held that penalties are not sustainable when based on income estimations. The Tribunal concluded that, in the absence of concrete evidence of income concealment and given the income estimation's basis, the penalty under Section 271(1)(c) was not justified and thus vacated the penalty.

Conclusion:
The Tribunal allowed the appeal, setting aside the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, due to the lack of corroborative material and reliance on estimated income. The Tribunal underscored the necessity of adhering to judicial directions and the insufficiency of penalties based solely on income estimations. The order was pronounced in the open court on 17/02/2017.