2014 (5) TMI 272 - AT - Income Tax

Appeal allowed on penalty imposition for A.Y. 04-05 under section 271(1)(c) - ITAT emphasizes evidence

The ITAT allowed the assessee's appeal and dismissed the Revenue's appeal regarding penalty imposition under section 271(1)(c) for A.Y. 04-05. The ITAT ... Confirmation of penalty u/s 271(1)(c) of the Act - Estimated Addition made – Comparison between expenditure debited to P&L account of current year with preceding year – Held that:- The CIT(A) rightly held that the addition was made by the AO on the basis of estimation but it was based on figures worked out in each head of expenditure for the two years - The production ratio had been computed on the basis of production figure disclosed by the assessee - the addition remains estimated - The books had been audited and all the particulars of income as well as expenditure have been disclosed by the assessee - Bogus purchases were claimed and purchases were not shown in sales or stock - Addition was made in GP - no such findings were given by the AO that there was specific discrepancy found in purchase and sale - no penalty u/s 271(1)(c) can be imposed upon the basis of estimated addition – Decided in favour of assessee. Issues:Cross appeals filed by assessee and Revenue against confirming and deleting penalty u/s. 271(1)(c) for A.Y. 04-05.Analysis:1. The Assessing Officer (A.O.) finalized assessment u/s. 143(3) with various additions leading to income determination at Rs. 1,11,54,040/- against return income NIL. The A.O. initiated penalty proceedings u/s. 271(1)(c) due to suppressed job receipts and production amounting to Rs.94,56,380/-, resulting in a downfall in GP Rate. The A.O. imposed a penalty of Rs.31,20,600/- as the assessee did not respond to the allegations.2. The CIT(A) partly allowed the appeal, acknowledging the suppression of production but highlighting that the suppressed amount represented production and not income. The CIT(A) directed the A.O. to apply the GP ratio of the preceding year to the suppressed production to calculate the undisclosed income and levy a penalty equal to 100% of the tax sought to be evaded on such income.3. The assessee challenged the penalty imposition, arguing that the additions were made on an estimated basis without concrete evidence of income concealment. The assessee cited various case laws to support the request for penalty deletion. The Revenue contended that the penalty was rightly imposed based on the A.O.'s findings of suppressed production and job receipts.4. The ITAT examined the case, noting that the addition was based on estimations and comparisons of expenditure and receipts for two years. The ITAT observed that serious discrepancies were found in the books of account, but no specific discrepancies were highlighted regarding purchases and sales in the assessee's case. Citing precedents, the ITAT concluded that penalties under section 271(1)(c) cannot be imposed solely on estimated additions. As the assessee's explanation was not found false, the penalty imposed by the A.O. was deleted.5. Consequently, the ITAT allowed the assessee's appeal and dismissed the Revenue's appeal, emphasizing that penalties cannot be imposed solely on estimated additions without concrete evidence of income concealment. The judgment was delivered on 29.04.2014.