2025 (4) TMI 607 - AT - Income Tax

No penalty under Section 271(1)(c) when income additions made on estimation basis after rejecting books

Hetal Ramanlal Shah Versus Income Tax Officer, Ward-1 (2) (2), Surat, Current Jurisdiction Income Tax Officer, Ward-1 (2) (1), Surat

ITAT Surat held that penalty under Section 271(1)(c) cannot be imposed when additions to income are made on estimation basis. Following the precedent in ... Penalty u/s 271(1)(c) - disallowance of payments have been directed to be restricted to 8% of the total turnover. HELD THAT:- In the case of AKM Resorts [2025 (2) TMI 650 - ITAT CHANDIGARH] ITAT held that where additions to assessee’s income were made by AO based on application of estimated rate of NP on gross receipts following rejection of books of account, penalty could not be sustained u/s 271(1)(c) of the Act. As additions have been partly confirmed in the hands of the assessee on estimation basis by ITAT Surat in assessee’s own case in quantum proceedings, in our considered view, no penalty is leviable under Section 271(1)(c) of the Act for concealment of income - Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are:1. Whether the Ld. CIT(A) erred in passing an ex-parte order without providing the assessee a reasonable opportunity to be heard.2. Whether the Ld. CIT(A) erred in dismissing the appeal without issuing a speaking order.3. Whether the Ld. CIT(A) erred in confirming the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961, for concealment of income.ISSUE-WISE DETAILED ANALYSIS1. Reasonable Opportunity to be HeardThe assessee contended that the Ld. CIT(A) passed an ex-parte order without providing a reasonable opportunity to be heard. The Court examined whether procedural fairness was adhered to, which is fundamental in ensuring justice. The Court did not provide specific details on this issue's resolution, focusing instead on the substantive grounds of appeal.2. Speaking Order RequirementThe assessee argued that the Ld. CIT(A) dismissed the appeal without providing a speaking order, which is necessary for transparency and understanding the rationale behind judicial decisions. The Court again focused more on the substantive issues rather than procedural lapses, indicating that the procedural aspects were not the central focus of the appeal resolution.3. Penalty under Section 271(1)(c)Relevant Legal Framework and Precedents:Section 271(1)(c) of the Income Tax Act, 1961, pertains to penalties for concealment of income or furnishing inaccurate particulars of income. The Court referred to several precedents where penalties were deemed inappropriate when income additions were made on an estimated basis.Court's Interpretation and Reasoning:The Court noted that the ITAT Surat had previously restricted the quantum of disallowance on an estimated basis to 8% of the total turnover. This estimation basis formed the crux of the Court's reasoning, as penalties under Section 271(1)(c) are generally not applicable when income is assessed based on estimates.Key Evidence and Findings:The Court referred to the ITAT Surat's order, which partially confirmed the additions on an estimated basis, directing disallowances to be limited to 8% of the turnover. This finding was pivotal in determining the applicability of the penalty.Application of Law to Facts:The Court applied the principle that penalties under Section 271(1)(c) are not warranted when income is determined on an estimated basis. This application was consistent with previous judicial pronouncements in similar cases.Treatment of Competing Arguments:The Ld. D.R. relied on the Ld. CIT(A)'s observations, which were countered by the assessee's argument referencing the ITAT Surat's decision. The Court favored the assessee's argument, supported by the principle that estimated assessments do not attract penalties.Conclusions:The Court concluded that no penalty under Section 271(1)(c) was leviable, as the additions were confirmed on an estimated basis.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'It is a well-settled principle of law that once additions have been made in the hands of the assessee on estimated basis, then there is no question of levy of penalty under Section 271(1)(c) of the Act.'Core Principles Established:The judgment reinforces the principle that penalties for concealment or inaccurate particulars are not applicable when income additions are based on estimation. This principle aligns with several precedents cited by the Court.Final Determinations on Each Issue:The Court allowed the appeal, ruling that the penalty under Section 271(1)(c) was not applicable due to the estimated nature of the income additions confirmed by the ITAT Surat.