2021 (4) TMI 304 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - estimation of disallowance at 50% of commission and improvement expenditure - HELD THAT - It is a basic need of the provisions of law that definite finding is required to be recorded by the Assessing Officer for reaching to a conclusion with regard to concealment of income or furnishing of inaccurate particulars of income and without any such findings, there cannot be any question of imposition of any penalty u/s.271(1)(c) - We find that the Ld. CIT(Appeals) relying on the written submission filed by the assessee adjudicated the claim of commission and also improvement expenditure but failed to make specific enquiry regarding the same and came to a conclusion based on only materials on record - disallowance upheld by the Ld. CIT(Appeals) is merely on estimate basis without any categorical statement of facts whether there is concealment of income‟ or furnishing of inaccurate particulars of income‟. More so, when the disallowances have been enforced by the Ld. CIT(Appeals) on estimation basis, in such scenario, the settled legal position is that no penalty u/s.271(1)(c) of the Act cannot be imposed When the bedrock of instant penalty is on the estimated addition, the same cannot be sustained. Therefore we are of the considered view that in this case, the additions were made on the basis of estimation and as discussed in the cases referred above, the penalty cannot be levied on the basis of estimated additions and thus, it is not a fit case for levying penalty. Accordingly, we set aside the order of the Ld. CIT(Appeals) and direct the Assessing Officer to delete the penalty from the hands of the assessee. Appeal of the assessee is allowed.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on estimation basis.

Analysis:
1. The appeal challenges the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2011-12.
2. The Assessing Officer initiated penalty proceedings due to the inability of the assessee to produce documentary evidence for claims made, resulting in an estimated disallowance added to the total income.
3. The Ld. CIT(Appeals) upheld the penalty based on written submissions without specific inquiry, leading to the imposition of penalty on an estimation basis.
4. The Ld. Counsel for the assessee argued that penalties cannot be imposed for disallowances made on an estimation basis, citing legal precedents.
5. The Tribunal noted the necessity of a definite finding by the Assessing Officer on concealment or furnishing inaccurate particulars of income for penalty imposition.
6. Relying on legal decisions, the Tribunal emphasized that penalties cannot be imposed solely on estimated additions without evidence of concealment.
7. The Tribunal referenced judgments by various High Courts to support the view that penalties under section 271(1)(c) cannot be imposed for income assessed on an estimate basis.
8. Considering the precedents and the circumstances of the case, the Tribunal concluded that penalties based on estimated additions are not justified and directed the Assessing Officer to delete the penalty.

This detailed analysis of the judgment highlights the key legal arguments, precedents, and considerations leading to the decision to set aside the penalty imposed on the assessee.