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2020 (9) TMI 865 - AT - Income TaxPenalty u/s 271(1)(c) - trading addition - Defective notice - non striking off the irrelevant portion of the printed show cause notice - assessment u/s 143(3)/153A making trading additions by applying the GP rate of 10% as against GP rate declared by the assessee - HELD THAT - AO had made the addition on account of application of G.P. Rate of 10% whereas no findings were recorded by the AO in the assessment order that the assessee had furnished inaccurate particulars of income or had concealed the income. The AO had invoked the provisions of Section 145(3) of the Act and estimated the income of the assessee on the basis of earlier history of the case. Therefore, we are of the view that it is a case of an estimate against an estimate. Hence, no penalty is leviable in such a case where additions are based purely on estimate basis. The mere revision of income to a higher figure on estimate basis by the AO does not automatically warrant an inference of concealment of income by the assessee. The addition to the income of the assessee in this case is based on estimate basis whereas the concealment in our views implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. See CIT vs K.R. Chinni Krishna Chetty 1998 (6) TMI 5 - MADRAS HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) without striking off irrelevant portions of the show cause notice. 2. Consistency with judicial principles in passing the penalty order under Section 271(1)(c). 3. Recording of satisfaction regarding concealment of income or furnishing inaccurate particulars. 4. Imposition of penalty under Section 271(1)(c) based on estimated additions. Detailed Analysis: 1. Validity of the Penalty Order: The assessee argued that the penalty orders under Section 271(1)(c) were invalid as the Assessing Officer (AO) did not strike off the irrelevant portion of the printed show cause notice. This issue was raised for all the assessment years involved (2005-06 to 2010-11). However, during the hearing, the assessee did not press this ground, and hence, it was dismissed. 2. Consistency with Judicial Principles: The assessee contended that the penalty orders were against the principles of judicial consistency. This ground was also not pressed during the hearing and was dismissed accordingly. 3. Recording of Satisfaction: The assessee claimed that the penalty orders were void ab initio as no satisfaction was recorded by the AO regarding concealment of income or furnishing inaccurate particulars. This ground was dismissed as it was not pressed during the hearing. 4. Imposition of Penalty Based on Estimated Additions: The primary issue revolved around the imposition of penalty under Section 271(1)(c) based on estimated additions. The AO had made additions by applying a Gross Profit (GP) rate of 10% instead of the declared GP rate of around 8%, based on certain incriminating documents found during a search and seizure operation. The CIT(A) reduced the GP rate to 8.5% on an estimated basis. The AO levied penalties based on these additions, which were confirmed by the CIT(A). The Tribunal noted that the additions were made on an estimated basis without any specific finding of inaccurate particulars or concealment of income by the assessee. The Tribunal emphasized that penalties under Section 271(1)(c) cannot be levied on estimated additions. The Tribunal cited several case laws to support this view, including: - Gulraj Vaswani Vs. ACIT: Penalty cannot be levied on estimated additions as there was no satisfaction about concealment recorded by the AO. - Smt. Bitoli Devi Vs. ACIT: No penalty is leviable on additions made on an estimated basis unless positive concealment is found. - Enfield Industries Ltd. Vs. DCIT: The onus lies with the Department to prove concealment for imposing penalty. - CIT V. P.H.I. Seeds India Ltd.: Penalty under Section 271(1)(c) is attracted only when the assessee has concealed income. - CIT vs. K.R. Chinni Krishna Chetty: A definite finding of concealment is necessary for imposing penalty. The Tribunal concluded that the AO did not record any findings of inaccurate particulars or concealment of income. The additions were based on estimates, and hence, no penalty could be levied. Consequently, the Tribunal allowed the appeals for all the assessment years and deleted the penalties. Conclusion: The appeals were partly allowed. The penalties levied by the AO and confirmed by the CIT(A) under Section 271(1)(c) were deleted for all the assessment years involved (2005-06 to 2010-11) as they were based on estimated additions without any specific findings of concealment or inaccurate particulars of income.
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