2013 (5) TMI 607 - AT - Income Tax

ITAT cancels penalty under Income Tax Act citing estimation basis, not deliberate concealment.

The ITAT allowed the appeal, canceling the penalty of Rs.1,75,000 imposed under section 271(1)(c) of the Income Tax Act. The ITAT held that since the ... Penalty under section 271(1)(c) - estimation additions - concealment of income - furnishing inaccurate particulars of income - burden on assessee to prove absence of concealment where source of capital is unexplained - cancellation of penalty where addition is sustained on estimationPenalty under section 271(1)(c) - estimation additions - concealment of income - Leviability of penalty under section 271(1)(c) in respect of an addition sustained by the Tribunal on an estimated basis. - HELD THAT: - The assessing officer made an addition which was partly deleted by the Tribunal and partly sustained by way of estimation. Where an addition is sustained on the basis of estimate, the Court held that it cannot be said the assessee has furnished inaccurate particulars or concealed particulars of income; nor can it be said the explanation was found false. Although the lower appellate authority relied on authorities placing the burden on the assessee to prove absence of concealment when a source of fresh capital is held unexplained, the Appellate Tribunal found that under the facts - the addition being an estimation by the Tribunal - imposition of penalty under section 271(1)(c) was not warranted. Applying this principle, the Tribunal set aside the orders of the revenue authorities and cancelled the penalty quantified in respect of the sustained estimated addition. [Paras 8, 9]Penalty imposed under section 271(1)(c) in respect of the addition sustained by estimation is cancelled and the appeal is allowed.Final Conclusion: The Appellate Tribunal held that penalty under section 271(1)(c) is not leviable where the addition sustained by the Tribunal is based on estimation; accordingly the penalty was set aside and the assessee's appeal allowed for Assessment Year 2004-05. Issues:Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.Analysis:Issue 1: Levy of Penalty under Section 271(1)(c)The appeal was filed against the order passed by the ld. CIT(A) regarding the levy of a penalty of Rs.1,75,000 under section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2004-05. The original addition made by the Assessing Officer (A.O.) included two items, out of which the ITAT sustained the addition of Rs.1,75,000. The A.O. levied the penalty on both additions on the grounds of inaccurate particulars of income. The CIT(A) directed the A.O. to restrict the penalty amount to Rs.1,75,000 based on various case laws and upheld the penalty in principle. However, the CIT(A) directed the A.O. to exclude the amounts deleted by the ITAT for quantifying the penalty. The ITAT observed that the explanation provided by the assessee for the additions was not plausible, but considering the circumstances, sustained the addition of Rs.1,75,000 on an estimation basis.Issue 2: Arguments and RulingsThe Authorized Representative argued that penalty under section 271(1)(c) should not be levied as the addition confirmed by the ITAT was based on estimation and the expenses furnished were not found false by the A.O. Various case laws were cited in support of this contention. The Departmental Representative relied on the order of the CIT(A). The ITAT, after hearing both parties, found that the addition was sustained based on estimation and not due to concealment or furnishing inaccurate particulars of income. It was noted that the explanation provided by the assessee was not found false. Therefore, the ITAT concluded that it was not a suitable case for imposing a penalty under section 271(1)(c) of the Act. Consequently, the orders of the Revenue Authorities were set aside, and the penalty of Rs.1,75,000 was cancelled.ConclusionThe ITAT allowed the appeal filed by the assessee, emphasizing that in cases where additions are made based on estimation and not due to concealment or furnishing inaccurate particulars of income, penalties under section 271(1)(c) may not be justified. The decision was based on the principle that penalties should be imposed only in cases of deliberate concealment or furnishing false information, which was not established in this instance.(Order pronounced in the open Court).