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2019 (9) TMI 292 - AT - Income TaxPenalty under u/s 271(1)(c) - period of limitation - GP addition confirmed at the rate of 5% on the estimated sales - whether the order passed by the AO is barred by the limitation? - HELD THAT - Penalty order was passed by the AO, which is barred by the limitation. It is also a settled law that the penalty provisions shall be applicable as prevailed in the year under consideration. In the present case, the order of the Ld.CIT(A) in the quantum appeal was passed after 1.6.2003. i.e. on 31.7.2003 as available from the record. It was received by the Department on 7.8.2003 as unrebuttedly contended by the learned counsel for the assessee. Thus, as per the proviso to section 275(1)(a) of the Act, the penalty order ought to have been passed on or before 31.3.2005. i.e. within one year from the end of the financial year in which the Id. CIT(A)'s order was received back by the Department. The penalty order, however, got to be passed only on 28.7.2009, that being so, the contention of the assessee is correct. The penalty order is clearly barred by limitation provided by the proviso to 275(l)(a) - Decided in favour of assessee
Issues Involved:
1. Whether the penalty order passed by the Assessing Officer (AO) is barred by the limitation period as specified under Section 275 of the Income Tax Act, 1961. 2. Whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961 can be levied based on estimation and debatable issues. Issue-wise Detailed Analysis: 1. Limitation Period for Penalty Order: The first issue for adjudication was whether the penalty order passed by the AO was barred by the limitation period specified under Section 275 of the Income Tax Act, 1961. The AO passed the penalty order on 20-02-2017, after the judgment by the Hon’ble Gujarat High Court dated 26-08-2016. The relevant provisions of Section 275(1)(a) required that the penalty order be passed within six months from the end of the month in which the order of the CIT(A), ITAT, High Court, or Supreme Court is received by the Principal Chief Commissioner or Principal Commissioner of Income Tax. The ITAT observed that the penalty provisions applicable were those in force during the year under consideration and that the amendment brought by the Amendment Act 2006, which inserted Section 275(1A), could not be applied retrospectively. It was noted that the AO was under the obligation to pass the penalty order after the pronouncement of the ITAT order within the specified time. Since the penalty order was passed after the judgment by the High Court, it was held that the penalty order was barred by the limitation period. 2. Penalty Based on Estimation and Debatable Issues: The second issue was whether the penalty under Section 271(1)(c) could be levied based on estimation and debatable issues. The AO imposed the penalty on the grounds that the assessee had concealed income by underreporting production and sales, which was revealed during a search operation. The AO noted that the assessee had accounted for only 1/10th of its actual production/sale and had recorded a higher loss percentage during manufacturing operations, thereby reducing its gross profit (GP). The penalty was levied based on the GP addition confirmed by the High Court at 5% of the estimated sales amounting to ?13,56,750. The CIT(A) upheld the penalty, rejecting the assessee's contention that the penalty was based on estimation and a debatable issue. The CIT(A) relied on the judgment of the Hon’ble Gujarat High Court in the case of ACIT v/s Chandravillas Hotel, which allowed penalty imposition based on estimation. The ITAT, however, observed that the addition with respect to suppressed profit was an estimated addition significantly reduced by the Tribunal, indicating a debatable issue. The ITAT noted that the assessee's explanation regarding bogus purchases was accepted by the CIT(A) in the quantum appeal, although the Tribunal later restored these additions partly. The fact that the Hon’ble High Court admitted the appeal on these issues suggested that they involved questions of law, further indicating their debatable nature. The ITAT concluded that in such cases, it could not be said that the explanation submitted by the assessee was false or that the assessee had concealed its income. Consequently, the ITAT found that the penalty under Section 271(1)(c) could not be sustained merely on the basis of estimation and debatable issues. Conclusion: The ITAT held that the penalty order passed by the AO was barred by the limitation period specified under Section 275 of the Income Tax Act, 1961. Additionally, the ITAT concluded that the penalty under Section 271(1)(c) could not be levied based on estimation and debatable issues. Therefore, the appeal of the assessee was allowed, and the penalty order was set aside.
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