2024 (10) TMI 1656 - AT - Income Tax

Penalty under section 271(1)(c) cannot be imposed when income addition made on estimated basis

M/s Vijay Jewellers Versus Additional/Joint/Deputy/Assistant Commissioner of Income-tax, Income Tax Officer, National Faceless Assessment Centre, Delhi/Present JAO – Dy. Commissioner of Income Tax-19 (3), Mumbai

M/s Vijay Jewellers Versus Additional/Joint/Deputy/Assistant Commissioner of Income-tax, Income Tax Officer, National Faceless Assessment Centre, ... 1. ISSUES PRESENTED and CONSIDERED- Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 is leviable where additions to income are made on an estimated basisRs.- Whether the assessee is liable to pay penalty for concealment of income or furnishing inaccurate particulars when the additions are based on estimated bogus purchasesRs.- Whether the orders of the lower authorities imposing penalty under section 271(1)(c) are sustainable in the facts and circumstances of the cases for Assessment Years 2011-12 and 2012-13Rs.2. ISSUE-WISE DETAILED ANALYSISIssue: Levy of penalty under section 271(1)(c) on additions made on estimated basisRelevant legal framework and precedents: Section 271(1)(c) of the Income-tax Act empowers the Assessing Officer to impose penalty for concealment of income or furnishing inaccurate particulars of income. However, the levy of penalty requires a definite finding of concealment or furnishing of inaccurate particulars beyond mere estimation.Several High Courts and coordinate benches of the Tribunal have held that penalty under section 271(1)(c) is not leviable where additions are made purely on an estimated basis without concrete evidence of concealment. The judgment of the Rajasthan High Court in CIT vs. Krishi Tire Retreading and Rubber Industries (360 ITR 580), Punjab & Haryana High Court in CIT vs. Sangrur Vanaspati Mills Ltd. (303 ITR 53), and Gujarat High Court in CIT vs. Subhash Trading Co. Ltd. (221 ITR 110) have consistently ruled that estimated additions do not attract penalty under section 271(1)(c).Court's interpretation and reasoning: The Tribunal examined the facts that the additions were made on estimated percentages of bogus purchases (5% for A.Y. 2011-12 and 8% for A.Y. 2012-13). The penalty was levied on the tax sought to be evaded based on these estimated additions. The Tribunal relied on a recent coordinate bench decision in Fancy Diamonds India Pvt Ltd vs. DCIT (ITA Nos 961 to 963/Mum/2023), where it was held that penalty is not sustainable on estimated additions as there is no definite finding of concealment or furnishing of inaccurate particulars.Key evidence and findings: The Assessing Officer made additions by estimating profit margins on alleged bogus purchases without establishing any concrete evidence of concealment. The assessee had withdrawn appeals before the CIT(A), and the penalty was imposed subsequently on the estimated additions. The Tribunal noted that the penalty was based solely on these estimates.Application of law to facts: Applying the established legal principles, the Tribunal found that since the additions were purely on an estimated basis, the imposition of penalty under section 271(1)(c) was not justified. The absence of any concrete proof of concealment or furnishing inaccurate particulars meant that the penalty could not be sustained.Treatment of competing arguments: The Departmental Representative supported the penalty orders relying on the assessments and CIT(A) orders. However, the Tribunal distinguished the present case on the ground that the addition was estimated and referred to binding precedents disallowing penalty on estimated additions. The Tribunal gave greater weight to the principle that penalty requires definite concealment, which was lacking here.Conclusions: The Tribunal concluded that penalty under section 271(1)(c) cannot be levied on additions made on estimated basis, and hence the penalty orders for both Assessment Years 2011-12 and 2012-13 were liable to be quashed.3. SIGNIFICANT HOLDINGS'It is an accepted legal position that penalty under section 271(1)(c) of the Act levied on additions made merely on estimations is unsustainable.''When the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty u/s. 271(1)(c) of the Act is not leviable.''Since the facts of the issue under consideration are identical with the facts of the appeal pertaining to Assessment Year 2013-14 decided by the coordinate bench, following the said decision, we hold that the penalty levied under Section 271(1)(c) of the Act is liable to be cancelled in the instant cases since the additions have been made on estimated basis.'Core principles established:Penalty under section 271(1)(c) requires a definite finding of concealment or furnishing inaccurate particulars, not mere estimation.Additions made solely on an estimated basis without concrete evidence do not justify imposition of penalty under section 271(1)(c).Withdrawal of appeals by the assessee does not validate penalty imposition if additions are estimated.Final determinations:Penalty imposed under section 271(1)(c) for Assessment Years 2011-12 and 2012-13 was set aside.Orders of the CIT(A) upholding penalty were quashed.Assessing Officer was directed to delete the penalty levied under section 271(1)(c) in all three years under consideration.All appeals filed by the assessee were allowed.