Penalty for estimated expense disallowance deleted by Tribunal for AY 2008-09.

The penalty imposed under section 271(1)(c) for disallowance of expenditure made on an estimated basis was deleted in the case for Assessment Year 2008-09. The CIT(A) and Tribunal both held that penalty cannot be imposed if the particulars supplied in the return are not found to be incorrect or false, as per the decision in CIT vs. Reliance Petro Products. The Tribunal affirmed the deletion of the penalty imposed by the Assessing Officer, emphasizing that penalty cannot be levied on estimated disallowance of expenses.

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Issues:
Penalty under section 271(1)(c) for disallowance of expenditure made on an estimated basis.

Analysis:
The appeal was filed against the order passed by CIT(A) for Assessment Year 2008-09, where the penalty of Rs. 24,90,696/- imposed by the Assessing Officer under section 271(1)(c) was deleted. The assessment was completed with an addition of Rs. 73,99,575/- on account of disallowance of expenditure made on an estimated basis. The Assessing Officer initiated penalty proceedings during the assessment, and after the appeal was dismissed by CIT(A), the penalty was imposed for furnishing inaccurate particulars of income.

The CIT(A) considered the appellant's case and noted that the appellant did not produce books of accounts at any stage of the proceedings. The AO had made the disallowance of expenses based on an estimate of 4% of turnover without providing reasons for such estimation method. The CIT(A) referred to the decision of the Hon'ble Supreme Court in CIT vs. Reliance Petro Products, emphasizing that penalty under section 271(1)(c) cannot be imposed if the particulars supplied in the return are not found to be incorrect or false. The CIT(A) concluded that the imposition of penalty for disallowance of expenditure on an estimated basis was not justified, and hence, directed to cancel the penalty.

The Tribunal upheld the CIT(A)'s decision, stating that penalty cannot be levied on additions made on an estimated disallowance of expenses. Referring to various decisions of the Hon'ble Apex Court and High Courts, the Tribunal dismissed the appeal of the Revenue, affirming the deletion of the penalty imposed by the Assessing Officer. The order was pronounced in the Open Court on 12th June 2019.

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