Tribunal overturns penalty under Income-tax Act for assessment year 2007-08 based on estimated income.

The tribunal overturned the decision of the CIT(A) and ordered the deletion of the penalty amounting to Rs. 10,62,120 imposed under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2007-08 based on estimated income. The tribunal held that penalties cannot be imposed when income is determined on an estimated basis, as there was no evidence of income suppression by the assessee apart from the estimate made by the AO. The appeal was allowed, and the penalty was removed.

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Issues:
- Penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2007-08 based on estimated income.

Analysis:
The appeal was filed by the assessee against the penalty imposed by the AO under section 271(1)(c) of the Income-tax Act, 1961, which was upheld by the CIT(A). The case involved the purchase of timber from abroad where the price varied based on quality, but the sale bills did not specify the quality. Due to the lack of proper stock register maintenance, the AO rejected the books of account under section 145(3) of the Act and made an addition to the income. The AO imposed a penalty on the estimated income, which was upheld by the CIT(A).

Upon review, the tribunal found that the AO had merely estimated the profit rate at 4.9% leading to an addition in income. However, in a previous order, the tribunal had reduced the profit rate to 3.53%. It was noted that there was no evidence of income suppression by the assessee apart from the estimate made by the AO. The tribunal referred to legal precedents, including judgments from the Delhi High Court, P&H High Court, and Gujarat High Court, stating that penalties cannot be imposed when income is determined on an estimated basis. Citing these precedents, the tribunal concluded that since the penalty was solely based on the estimated income, it could not be sustained.

Therefore, the tribunal overturned the decision of the CIT(A) and ordered the deletion of the penalty amounting to Rs. 10,62,120. Consequently, the appeal was allowed, and the penalty was removed.

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