2025 (10) TMI 688 - AT - Income Tax

Penalty under section 271(1)(c) quashed where penalty based on estimated additions without a definite concealment finding

ITAT KOLKATA - AT allowed the appeal and set aside the penalty under s.271(1)(c). The tribunal found the assessing officer's penalty initiation rested on ... Penalty u/s 271(1)(c) - addition has been made on estimation basis - whether definite finding on the quantum of concealment of income? - HELD THAT:- We find that there is no denying to this fact that the AO has initiated a penalty proceeding on account of concealment of income. When the said order has been challenged by the assessee before the CIT(A), CIT(A) has held that the assessee has concealed the particulars of income to the extent of Rs. 1,50,000/-. The present case is squarely covered with the cited judicial pronouncement in Jatin Enterprises [2024 (3) TMI 1073 - ITAT MUMBAI] Notices issued clearly revels that it is on estimation, there is no specific charge. Accordingly, the appeal of the assessee is hereby allowed and the impugned order of penalty is hereby set aside. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be sustained where the assessment additions are made purely on estimation without any definite finding on the quantum of concealment. 2. Whether the penalty notice under section 274 read with section 271(1)(c) is vitiated where the notice uses a pre-drafted form reciting both limbs of section 271(1)(c) ('concealed particulars of income' and 'furnished inaccurate particulars of income') without striking off the inapplicable limb and without specifying the amount or particularized charge. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainability of penalty where additions are based on estimation Legal framework: Penalty under section 271(1)(c) is attracted where the assessee has either concealed particulars of income or furnished inaccurate particulars of income. The imposition of penalty requires a finding of concealment or furnishing of inaccurate particulars of income. Precedent treatment: Multiple judicial authorities and coordinate benches of the Tribunal have held that penalty under section 271(1)(c) is not leviable where additions are made purely on estimate and there is no concrete evidence of concealment. Such precedents treat estimated additions as insufficient to sustain penalty. Interpretation and reasoning: The Tribunal applied the principle that estimation-based assessments, devoid of definite findings or concrete evidence establishing concealment of income, do not furnish the requisite material to sustain a penalty under section 271(1)(c). The reasoning rests on the distinction between an assessment addition (which may be provisional or evidentiary) and a conclusive finding of concealment; where the AO's addition is essentially inferential or estimated, it fails to satisfy the threshold required to impose punitive consequences. Ratio vs. Obiter: Ratio - where additions are made solely on estimate without concrete evidence or a definite finding of concealed income, penalty under section 271(1)(c) is unsustainable. This constitutes the operative holding applicable to like facts. Conclusion: Penalty cannot be sustained in cases where the assessment additions are purely based on estimation and there is no definite finding quantifying or evidencing concealment; accordingly the penalty was deleted on this ground. Issue 2 - Defect in penalty notice for failing to strike out inapplicable limb(s) and for lack of particularization Legal framework: Section 274 provides for issuance of notice to show cause for imposition of penalty under section 271(1)(c). A valid notice must correctly and specifically communicate the charge; procedural defects that mislead or fail to specify the ground(s) of liability can vitiate penalty proceedings. Precedent treatment: Judicial authorities have held that where the AO records satisfaction to impose penalty under one limb of section 271(1)(c) but issues a pre-drafted notice reciting both limbs without striking off the inapplicable portion, the notice is defective and renders penalty proceedings invalid. The same line of decisions supports invalidation where notices are non-specific or do not state the quantum/particulars relied upon for concealment. Interpretation and reasoning: The Tribunal examined the notice used in the case and found it to be a pre-drafted pro forma that recited both permutations of section 271(1)(c) without striking out the irrelevant limb and without specifying the amount or particulars of alleged concealment. Where the assessment order itself shows that penalty proceedings arose from an estimated addition, and the show-cause notice fails to particularize the charge (including quantum), the notice does not meet the statutory/constitutional requirement of clarity and fair notice. Such procedural infirmity undermines the validity of the penalty proceedings. Ratio vs. Obiter: Ratio - a show-cause notice that recites both limbs of section 271(1)(c) without striking the inapplicable limb, and without adequate particularization of the alleged concealment, is defective and can invalidate penalty proceedings. This forms a binding application of precedent to facts and is an essential holding. Conclusion: The notice was defective for failing to strike out irrelevant clauses and for lack of specificity; accordingly penalty was liable to be set aside on this ground as well. Cross-reference: this conclusion reinforces and is concurrent with the outcome under Issue 1 where estimation-based additions could not sustain penalty. Overall Conclusion The Tribunal allowed the appeal and set aside the penalty under section 271(1)(c) because (a) the impugned assessment additions were essentially estimate-based and did not constitute concrete evidence of concealment sufficient to attract penalty, and (b) the show-cause notice under section 274 was defective by reciting both limbs of section 271(1)(c) without striking out the inapplicable limb and without particularizing the alleged concealment; both grounds independently warranted deletion of the penalty.