2018 (2) TMI 352 - HC - Income Tax

Penalty u/s 271(1)(c) - additions on tax evasion - Held that - Additions made is not on a mere estimation. Only on the search and seizure and the subsequent statement from the assessee conceding a profit margin, not clearly stated that the addition was made by the Assessing Officer. Neither the assessee nor their supplier could offer a satisfactory explanation for the low profit conceded of the sale of lenses. This is the incriminating evidence which was revealed on the proceedings pursuant to search and seizure that led to the addition. It cannot be said that the same is a mere estimation. We hence sustain the Tribunal s order. However, we make it clear that the Assessing Officer has to redo the penalty and impose it only to the extend of the tax evasion with respect to the additions of ₹ 8,48,400/- and ₹ 8,70,000/- in the respective years. The tax evaded on that component of addition with respect to the profit derived on lens, would be the penalty, which is at the minimum as permitted in Section 271(1).

Summary

Issues:
1. Justification of penalty under Section 271(1)(c) without tangible material recovered in search and seizure.
2. Imposition of penalty for assessment years 2007-08 and 2008-09 based on additions made by the Assessing Officer.
3. Contention regarding the penalty being based on estimations.
4. Consideration of incriminating evidence in sustaining the penalty.

Analysis:

Issue 1: The appellant challenged the penalty order, questioning the justification of sustaining the penalty under Section 271(1)(c) without tangible material recovered in search and seizure. The Tribunal upheld the penalty for the assessment years 2007-08 and 2008-09. The appellant argued that since the additions were mere estimations and a sizable quantum for other years was deleted, the penalty for these years should also be deleted.

Issue 2: The penalty amounts imposed for the assessment years 2007-08 and 2008-09 were ?4,18,627 and ?4,23,111, respectively, based on the additions made during the block assessment conducted under Section 132 of the Income Tax Act, 1961. The Assessing Officer invoked Section 271(1)(c) for penalty imposition, which was confirmed by the Tribunal.

Issue 3: The appellant contended that even the additions made were based on estimates, particularly regarding the profit from the sale of lenses. The Tribunal found that the profit margin on the sale of lenses was concealed by the assessee, based on the deposition of the assessee and their suppliers. The Assessing Officer reduced the additions to 30% of the sale price, considering the incriminating evidence revealed during the proceedings.

Issue 4: The High Court upheld the Tribunal's order, stating that the additions were not mere estimations but based on incriminating evidence obtained during the search and seizure operation. The Court emphasized that the penalty should be imposed only to the extent of tax evasion related to the profit derived from the sale of lenses, as per the minimum permitted under Section 271(1). The Court rejected the Income Tax appeal, affirming the sustenance of the penalty confirmed by the Tribunal.

In conclusion, the High Court upheld the penalty imposed under Section 271(1)(c) for the assessment years 2007-08 and 2008-09, based on the additions made by the Assessing Officer supported by incriminating evidence. The Court emphasized that the penalty should be proportional to the tax evasion related to the concealed profit from the sale of lenses, as per the minimum permissible under the law.