2025 (3) TMI 218 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Addition of bogus expenses by rejecting the books - estimation of the profit at 40% of the turnover as reduced to 7% by the Appellate Authority - HELD THAT - Addition made by the A.O. was based on estimation at 40% of the turnover which was modified by the Appellate Authority to 7% in the present case. Therefore no question of levying Penalty u/s. 271(1)(c) of the Act and the same is liable to be deleted and we direct so to delete the same. Appeal filed by the Assessee is allowed.

Summary

The appeal in this case concerns the penalty levied under section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2013-14. The appellant, a Limited Company engaged in Real Estate Development, challenged the penalty imposed by the Commissioner of Income Tax (Appeals) after an ex-parte order confirming the penalty. The appellant's income was disallowed by the Assessing Officer, and the disallowance was modified by the Ld. CIT(A) and ITAT. The Assessing Officer initiated penalty proceedings and imposed a penalty for concealment of income, which was confirmed by the Ld. CIT(A).The key issues considered in this case are whether the penalty under section 271(1)(c) can be levied based on an estimation of income and whether the penalty imposed was justified. The appellant argued that penalty cannot be levied based on an estimation of income, citing relevant case laws to support their position.The Tribunal analyzed the facts and legal framework, considering precedents such as the case of ITO vs. Bombaywala Readymade Stores, which held that no penalty could be levied for concealment of income when income was assessed on an estimated basis. The Tribunal also referred to the case of Thakorbhai & Company Vs. ITO, where it was held that no penalty is leviable when additions are based on estimations made by the Assessing Officer.The Tribunal concluded that since the addition made by the Assessing Officer was based on an estimation of income at 40% of the turnover, which was later modified to 7% by the Appellate Authority, no penalty under section 271(1)(c) could be levied. Therefore, the Tribunal allowed the appeal filed by the Assessee and directed the deletion of the penalty.In summary, the Tribunal held that penalty under section 271(1)(c) cannot be levied based on estimations of income and that in this case, where the addition was based on estimation, the penalty was not justified. The Tribunal allowed the appeal and directed the deletion of the penalty imposed on the Assessee.