2020 (9) TMI 758 - AT - Income Tax

Tribunal cancels penalties under Income Tax Act for assessee, emphasizes need for definite finding.

The Tribunal allowed the appeals filed by the assessee, partly deleting the penalties levied under Section 271(1)(c) of the Income Tax Act, 1961, for all ... Penalty under section 271(1)(c) - concealment of income - furnishing inaccurate particulars of income - estimated additions - requirement of a definite finding of concealment before imposing penalty - estimation of income under section 145(3) - onus on revenue to prove concealmentPenalty under section 271(1)(c) - estimated additions - requirement of a definite finding of concealment before imposing penalty - estimation of income under section 145(3) - onus on revenue to prove concealment - Whether penalty under section 271(1)(c) could be sustained where additions were made on estimate basis without any recorded finding of concealment or furnishing of inaccurate particulars of income. - HELD THAT: - The Tribunal found that the Assessing Officer applied an enhanced gross profit rate by invoking estimation under section 145(3) and made additions on an estimated basis. The assessment order contained no specific finding that the assessee had furnished inaccurate particulars or had concealed income; the additions were estimates derived from earlier history and differing views at successive levels. The authorities and cited precedents establish that mere revision of income upward or making additions on estimate does not automatically support an inference of deliberate concealment. For imposition of penalty under section 271(1)(c) a definite finding of concealment or furnishing inaccurate particulars is necessary and the onus lies on the revenue to demonstrate such concealment. Applying these principles to the facts, the Tribunal concluded that the additions were estimation-versus-estimation and that penalty could not be levied in absence of any recorded satisfaction or positive finding of concealment.Penalty under section 271(1)(c) deleted as additions were based on estimation and no definite finding of concealment or inaccurate particulars was recorded.Procedural non-pressing of grounds - Disposition of Grounds 1 to 3 which were not pressed by the assessee. - HELD THAT: - The assessee's authorised representative did not press Grounds 1 to 3 before the Tribunal in respect of each assessment year. The Tribunal, noting that those grounds were not pressed, dismissed them as not pressed without further adjudication.Grounds 1 to 3 dismissed as not pressed.Final Conclusion: The Tribunal allowed the appeals in part by deleting the penalties imposed under section 271(1)(c) for the stated assessment years on the ground that additions were purely estimated and no definite finding of concealment or furnishing of inaccurate particulars was recorded; Grounds 1-3 were dismissed as not pressed. Issues Involved:1. Validity of the order passed by the AO under Section 271(1)(c) of the Income Tax Act, 1961 without striking off the irrelevant portion of the printed show cause notice.2. Whether the order passed by the AO under Section 271(1)(c) of the Income Tax Act, 1961 is against the principles of judicial consistency.3. Whether the order passed by the AO under Section 271(1)(c) of the Income Tax Act, 1961 is void ab initio due to lack of recorded satisfaction regarding concealment of income or furnishing inaccurate particulars of income.4. Legitimacy of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of the Order Passed by the AO under Section 271(1)(c) Without Striking Off the Irrelevant Portion of the Show Cause Notice:The assessee argued that the order passed by the AO under Section 271(1)(c) is bad in law as the AO did not strike off the irrelevant portion of the printed show cause notice. However, during the course of hearing, the assessee did not press this ground, and hence, it was dismissed as not pressed.2. Judicial Consistency:The assessee contended that the order passed by the AO under Section 271(1)(c) is against the principles of judicial consistency. This ground was also not pressed during the hearing and was dismissed.3. Void Ab Initio Due to Lack of Recorded Satisfaction:The assessee claimed that the order passed by the AO under Section 271(1)(c) is void ab initio as no satisfaction was recorded regarding concealment of income or furnishing inaccurate particulars of income. This ground was not pressed during the hearing and was dismissed.4. Legitimacy of the Penalty Imposed under Section 271(1)(c):The main contention was regarding the penalty imposed by the AO under Section 271(1)(c). The assessee argued that the penalty was imposed based on estimated additions and not on any specific finding of concealment or inaccurate particulars of income. The AO had applied a GP rate of 8% based on earlier history, which was an estimate against the declared GP rate of around 5.2%. The Tribunal observed that the AO did not record any findings that the assessee furnished inaccurate particulars of income or concealed income. The addition was based on the estimation method under Section 145(3) of the Income Tax Act, 1961.The Tribunal noted that penalty cannot be levied on estimated additions. It cited several case laws supporting the view that penalty under Section 271(1)(c) is not justified when the addition is based on estimation. The Tribunal emphasized that a definite finding of concealment or furnishing inaccurate particulars of income is necessary for imposing a penalty. The Tribunal referred to the decision of the Hon'ble Madras High Court in CIT vs K.R. Chinni Krishna Chetty, which stated that mere revision of income to a higher figure does not automatically warrant an inference of concealment.Based on the facts and circumstances, the Tribunal concluded that the additions were made on an estimated basis, and hence, no penalty is leviable. The Tribunal allowed the ground of appeal raised by the assessee and deleted the penalty levied by the AO and confirmed by the CIT(A).Application to Other Assessment Years:For the assessment years 2005-06, 2006-07, 2007-08, and 2009-10, the Tribunal applied the same reasoning and conclusions as in the assessment year 2004-05. The Tribunal allowed the ground of appeal for these years as well, thereby deleting the penalties imposed.Conclusion:The Tribunal allowed the appeals filed by the assessee partly, deleting the penalties levied under Section 271(1)(c) of the Income Tax Act, 1961, for all the assessment years in question. The order was pronounced in the open court on 14/09/2020.