2020 (7) TMI 43 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Penalty proceeding u/s 271(1)(c) initiated for furnishing inaccurate particular of income - HELD THAT - Admittedly the AO made an addition on estimated basis. It has been decided in a number of judgments that when income of assessee was determined on estimation basis of net profit, then no penalty u/s 271(1)(c) could be imposed for concealment and furnishing inaccurate particulars. The penalty order is fully silent on the issue as to how the satisfaction of concealment/furnishing of inaccurate of particulars of income was arrived at. The quantification of the alleged concealment/inaccurate particulars, is admittedly only an estimate. Needless to mention that it is settled principle of law that penalty is not attracted on estimated additions. In that view of the matter we find no justification imposing penalty for concealment of income or furnishing of inaccurate particulars of income by the assessee. Hence, penalty order is quashed. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on an estimated addition.
2. Justification for imposing penalty for concealment of income or furnishing inaccurate particulars of income.
3. Procedural issue regarding the pronouncement of orders within the specified time frame due to the Covid-19 pandemic lockdown.

Analysis:
1. The appeal challenged the penalty order under section 271(1)(c) of the Act, which was based on an estimated addition of ?5,15,899 made by the Assessing Officer (AO) on assumption basis. The assessee contended that since the quantum order was also passed on an assumption basis, the penalty should not be levied. The Tribunal agreed, citing established legal principles that penalties cannot be imposed for estimated additions. The penalty order was quashed, and the appeal was allowed in favor of the assessee.

2. The Revenue argued that the penalty was justified due to discrepancies in the vouchers for expenditure and the estimation of profit. However, the Tribunal noted that the AO did not explicitly state any gross negligence on the part of the assessee. Additionally, the penalty order did not provide sufficient reasoning on how the satisfaction of concealment or furnishing inaccurate particulars of income was reached. The Tribunal referred to previous judgments stating that penalties are not attracted for estimated additions. Consequently, the penalty for concealment or furnishing inaccurate particulars of income was deemed unjustified, leading to the quashing of the penalty order.

3. The Tribunal addressed a procedural issue concerning the pronouncement of orders within the stipulated time frame during the Covid-19 lockdown. Citing a Co-ordinate Bench decision and legal provisions, the Tribunal excluded the lockdown period while computing the time limit for pronouncing the order. Acknowledging the extraordinary circumstances due to the pandemic and the legal extensions granted by higher courts, the Tribunal concluded that the lockdown period should be considered exceptional, and the order was pronounced accordingly. The appeal by the assessee was allowed based on these considerations.

This detailed analysis covers the key legal aspects and reasoning behind the judgment delivered by the Appellate Tribunal ITAT Rajkot.