2023 (6) TMI 381 - AT - Income Tax

Appeal allowed, penalty under Income Tax Act section 271(1)(c) set aside. No penalties on estimated income.

The tribunal allowed the appeal of the assessee, setting aside the penalty imposed under u/s 271(1)(c) of the Income Tax Act. The tribunal ruled that ... Penalty u/s 271(1)(c) - Income assessed was based on estimate basis - estimated profit @8% - HELD THAT:- As relying on Aero Traders Pvt. Ltd. [2010 (1) TMI 32 - DELHI HIGH COURT] and Subhash Trading Company (Guj) [1995 (11) TMI 37 - GUJARAT HIGH COURT] additions were made/sustained by the CIT(A) on the basis of estimation and the penalty cannot be levied on the basis of estimated additions and therefore, the Assessee cannot be subjected to levying penalty. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be sustained where the assessing authority's additions are founded on estimated income/profit rather than specific findings of concealment or furnishing of inaccurate particulars. 2. Whether penalty proceedings being separate and independent from assessment require independent evidence of concealment or inaccurate particulars beyond the assessment order based on estimation. 3. Whether delay in filing the appeal should be condoned in light of age, medical incapacity, alleged dispatch of appeal documents by courier, and COVID-19 related restrictions. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainment of penalty under section 271(1)(c) when additions are based on estimates. Legal framework: Section 271(1)(c) penalizes concealment of income or furnishing of inaccurate particulars of income; penalty requires establishment of concealment or inaccuracy. Additions based on estimation (e.g., estimating sales from sales-tax deposits and applying an assumed profit rate) result in assessed income that is not founded on a specific identified misstatement of particulars. Precedent Treatment: Higher courts have consistently held that additions made purely on estimated profit/turnover, without specific findings or evidence of concealment or inaccurate particulars, do not warrant imposition of penalty under section 271(1)(c). Such decisions have been treated as binding precedent in the judgment and applied to the facts. Interpretation and reasoning: The Tribunal notes that the assessing officer's addition was derived from an estimate (estimating total sales from sales-tax deposits and applying an 8% net profit to determine income). The CIT(A) substantially reduced or modified such estimations in the quantum appeal and sustained only estimated additions. The Tribunal reasons that where the 'bedrock' of the penalty is an estimation arrived at by the AO (without identification of specific items of concealment or inaccurate particulars and without conclusive evidentiary basis), the quasi-criminal nature of penalty proceedings requires positive proof of deliberate concealment or furnishing inaccurate particulars. Estimated additions arising out of guesswork or reconstruction cannot, by themselves, support penalty liability. Ratio vs. Obiter: Ratio - where additions are based on estimation without specific evidence of concealment or inaccurate particulars, penalty under section 271(1)(c) cannot be imposed. Obiter - observations about the assessing officer not recording investigations during remand proceedings are incidental but support the principal reasoning. Conclusions: The Tribunal concludes that the penalty levied under section 271(1)(c) cannot be sustained because the additions upheld were on an estimated basis; therefore the essential requirement of establishing concealment or furnishing of inaccurate particulars was not met. The penalty is deleted. Issue 2: Independence of penalty proceedings and reliance on assessment order based on estimation. Legal framework: Penalty proceedings are independent and quasi-criminal; the assessing officer must establish culpability (concealment/inaccuracy) independent of the mere fact of an addition in assessment. Precedent Treatment: Decisions cited in the judgment emphasize that a mere assessment addition, particularly one founded on estimation, does not ipso facto establish culpability for penalty; appellate authorities have held that penalty cannot be sustained where additions lack specific evidential basis. Interpretation and reasoning: The Tribunal accepts the proposition that penalty proceedings are separate but observes that in the present case the AO relied solely on the estimation adopted in the assessment order. Because that estimation was not supported by identification of specific inaccuracies or by conclusive evidence of concealment, reliance on such assessment for penalty was legally insufficient. The Tribunal aligns with precedent that a finding of concealment must be positive and founded on specific evidence rather than on inferred or estimated figures. Ratio vs. Obiter: Ratio - penalty cannot be sustained where the AO's case for penalty is premised solely on estimated additions without independent proof of concealment; Obiter - commentary on the AO's failure to conduct or record investigative steps during remand proceedings. Conclusions: The Tribunal holds that the assessing authority's sole reliance on estimated additions in penalty proceedings was misplaced; penalty proceedings required independent proof which was absent, and thus the penalty cannot stand. Issue 3: Condonation of delay in filing appeal. Legal framework: The power to condone delay in filing an appeal is exercised by the Tribunal on consideration of the sufficiency of reasons for delay, including health, age, and bona fide attempts to file. Precedent Treatment: The Tribunal applied a liberal view consistent with principles that personal incapacity and bona fide procedural missteps may justify condonation where the explanation is credible and supported by documentary evidence. Interpretation and reasoning: The assessee, an elderly person with documented heart surgeries and confinement to bed for an extended period, filed an application supported by courier receipt, appeal fee challan, and a medical certificate. Although the Tribunal recognized that filing by courier was not permissible, it accepted that the appellant had attempted to dispatch the appeal and was unable to follow up due to serious health issues and COVID-19 restrictions. Balancing these factors and adopting a liberal view, the Tribunal found the reasons sufficient to condone the 798-day delay. Ratio vs. Obiter: Ratio - the delay was condoned based on age, medical incapacity supported by certificate, and demonstrated effort to dispatch the appeal; Obiter - remarks about the registry not accepting courier filings are incidental. Conclusions: The Tribunal condoned the delay of 798 days and admitted the appeal for adjudication on merits. Cross-reference and overall disposition Where the penalty imposition was predicated upon additions sustained on an estimated basis (see Issue 1 and Issue 2), and absent any independent, positive evidence of concealment or inaccurate particulars, the Tribunal set aside the penalty order. Having condoned the procedural delay (Issue 3), the Tribunal allowed the appeal and deleted the penalty.