2021 (6) TMI 544 - AT - Income Tax

Penalty levied u/s 271(1)(c) - non-disclosure of the contract works and addition made on estimated basis - HELD THAT - We observe that the penalty has been imposed by the Assessing officer on the estimated additions and rejected books of accounts of the assessee applying sec.145(3) of the Act for furnishing inaccurate particulars leading to concealment of income u/s 271(1)(c ) of the Act. On a similar issue the coordinate bench of this Tribunal 2021 (5) TMI 437 - ITAT HYDERABAD has decided the appeal in favour of the assessee holding that penalty cannot be imposed on estimated additions made by the Assessing officer. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars leading to concealment of income.
2. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
3. Estimation of income and penalty based on estimated additions.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The primary issue in this case is the imposition of a penalty under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income, leading to concealment. The Assessing Officer (AO) imposed a penalty of ?5 lakhs, which is 100% of the tax evaded, based on the estimated additions made during the assessment. The Tribunal noted that the penalty was imposed on the ground of non-disclosure of contract works and additions made on an estimated basis. The Tribunal referenced a similar case (ITA 535/Hyd/2019) where it was held that "penalty cannot be levied on the estimate addition."

2. Rejection of Books of Accounts under Section 145(3):
The AO rejected the books of accounts under Section 145(3) of the Act, observing that the assessee was unable to substantiate the expenditure claimed in the profit and loss account. Consequently, the AO estimated the net profit on a percentage basis, leading to an assessed income of ?81,54,518. The Tribunal highlighted that the rejection of books and estimation of income were based on the AO's conclusions without concrete evidence.

3. Estimation of Income and Penalty Based on Estimated Additions:
The Tribunal emphasized that penalty under Section 271(1)(c) cannot be imposed based on estimated additions. It cited various judgments, including the Hon'ble Supreme Court's decision in K.P. Varghese v. ITO, which held that "it is only the registered value of any property which has to be considered and the onus of establishing that any amount was received over and above the amount declared is always on the Revenue." The Tribunal also referenced the Hon'ble Punjab & Haryana High Court's judgment in CIT v. Sangrur Vanaspati Mills Ltd., which supported the view that penalty cannot be levied on estimated additions.

Conclusion:
After considering the submissions and material on record, the Tribunal concluded that the penalty imposed by the AO was not justified. The Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalty levied under Section 271(1)(c) of the Act, following the precedent that penalty cannot be imposed on estimated additions. The appeal of the assessee was allowed, and the order was pronounced on 15/06/2021.