Penalty under section 271(1)(c) on estimated additions not sustainable, penalty deleted following Gipilon Texturising precedent

The ITAT SURAT held that penalty under section 271(1)(c) on estimated additions is not sustainable in law. The assessee had unexplained cash deposits in savings account, claiming agricultural income as source. The AO partially accepted the submission and made estimated income addition. Following the precedent in Gipilon Texturising Pvt. Ltd. case, the tribunal ruled that penalties cannot be imposed on estimated additions and deleted the penalty, deciding in favor of the assessee.

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Issues:
The appeal pertains to the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2014-15, based on the addition of cash deposits made by the assessee in their bank account.

Grounds of Appeal:
1. The assessing officer erred in levying penalty u/s 271(1)(c) without specifying whether it was for concealment of income or furnishing inaccurate particulars.
2. The CIT(A) erred in confirming the penalty imposed by the assessing officer.
3. The penalty levied should be deleted.
4. Appellant reserves the right to modify grounds during the appeal.

Facts of the Case:
- The assessee, engaged in agriculture activities, deposited cash in their bank account.
- The assessing officer added Rs. 10,00,000 on an estimated basis, treating it as unexplained income.
- Penalty proceedings u/s 271(1)(c) were initiated based on this addition.
- The assessing officer concluded that the assessee furnished inaccurate particulars of income and concealed Rs. 5,45,000.
- The penalty of Rs. 3,09,062 was imposed.

Arguments:
- The appellant argued that penalty on estimated addition is not sustainable, citing relevant case law.
- The assessing officer initiated penalty on both limbs without invoking Explanation-1 of Section 271(1)(c).
- The Revenue supported the penalty order, stating it was correctly initiated on both limbs and on estimated addition.

Judgment:
- The Tribunal found that penalty on estimated addition is not sustainable in law, following a Co-ordinate Bench judgment.
- The penalty imposed on estimated income was deleted, as the assessing officer further estimated the income during penalty proceedings.
- Other arguments became irrelevant after the deletion of the penalty.

Conclusion:
The Tribunal allowed the appeal, deleting the penalty imposed u/s 271(1)(c) based on the plea that penalty on estimated addition is not legally valid. The judgment was pronounced on 30/10/2023.

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