2011 (9) TMI 1015 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty imposed on account of profit from unaccounted sales.
2. Deletion of penalty imposed on account of unexplained investment.
3. Deletion of penalty imposed on account of cash amounting to Rs. 7,48,510/-.
4. Admission of additional submission regarding cash surrendered during search in contravention to Rule 46-A of the I.T. Rules.

Summary:

Issue 1: Deletion of Penalty on Profit from Unaccounted Sales

The Revenue appealed against the deletion of penalty imposed u/s 271(1)(c) for profit from undisclosed sales. The assessee had declared income from unaccounted sales at Rs. 63,64,345/- while the AO estimated it at Rs. 65,24,475/- by adopting a higher GP rate. The ITAT held that penalty u/s 271(1)(c) is not attracted when additions are made on an estimated basis, citing the decision of Hon'ble Chhattisgarh High Court in CIT Vs. Vijay Kumar Jain 325 ITR 378.

Issue 2: Deletion of Penalty on Unexplained Investment

The AO imposed penalty on an addition of Rs. 21,48,396/- as unexplained investment in unaccounted business. The ITAT noted that no material was found during the search to suggest such investment except for the seized cash, which had already been surrendered u/s 132(4). The addition was made on an estimated basis, and thus, no penalty can be levied on such estimated additions.

Issue 3: Deletion of Penalty on Cash Amounting to Rs. 7,48,510/-

The AO imposed penalty on unexplained cash of Rs. 22,64,870/-, which included Rs. 7,48,510/- surrendered during the search. The ITAT found that the assessee had surrendered cash of Rs. 1,40,48,510/- u/s 132(4), which was accepted by the AO. The remaining cash of Rs. 15,16,360/- was found from various occupants and could not be treated as owned by the assessee. Therefore, invoking Explanation 5 of section 271(1)(c) was not justified, and the penalty was canceled.

Issue 4: Admission of Additional Submission Regarding Cash Surrendered During Search

The Revenue contended that the ld. CIT (Appeals) erred in admitting additional submissions regarding cash surrendered during the search, contravening Rule 46-A of the I.T. Rules. However, the ITAT did not find merit in this contention and upheld the deletion of the penalty.

Conclusion:

The ITAT dismissed the Revenue's appeal and allowed the cross-objection filed by the assessee, holding that no penalty u/s 271(1)(c) was imposable on the additions made on an estimated basis or on the surrendered cash and investments.

The order pronounced in the open court on: 23rd September, 2011.