2008 (3) TMI 43 - HC - Income Tax

Penalty @ 100 % for furnishing inaccurate particulars levied by AO u/s 271(1)(c) - assessee owns a hotel AO adopted the food cost at 45% of the total sales when he found that assessee had inflated the expenses on account of food cost - ITAT uphold that in a case where additions have been made on the basis of estimate penalty cannot be imposed under Section 271(1)(c ) - no ground to interfere in the well reasoned judgment of the ITAT, hence Revenue s appeals are dismissed

Summary

Issues:
Initiation of penalty under Section 271(1)(c) of the Income Tax Act for assessment years 1997-98 and 1999-2000 based on inaccurate particulars of income.

Analysis:
The appeals were filed by the Revenue against the order of the Income Tax Appellate Tribunal regarding penalty initiation under Section 271(1)(c) for the assessment years 1997-98 and 1999-2000. The common issue in both appeals was the imposition of penalties amounting to Rs. 1,61,400/- and Rs. 2,98,775/- respectively. The Assessing Officer found that the assessee inflated expenses related to food costs during the assessment proceedings under Section 143(3). The Assessing Officer adopted the food cost at 45% of total sales based on industry norms and information from CITCO and Haryana Tourism, making additions for suppressed sales and initiating penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income.

The Commissioner of Income Tax (Appeals) restricted the additions made by the Assessing Officer. The Revenue's appeal against this decision was dismissed by the Income Tax Appellate Tribunal. Subsequently, the penalty proceedings were initiated by the Assessing Officer based on inaccurate particulars of income. The Commissioner of Income Tax (Appeals) canceled the penalty, citing the Assessing Officer's failure to provide reasons for initiating penalty proceedings and the fact that the additions were based on estimates. The Commissioner of Income Tax (Appeals) referenced the law laid down in Commissioner of Income Tax Vs. M. M. Rice Mills 253 ITR 17, stating that penalties cannot be imposed when additions are made on an estimated basis.

The Revenue appealed the Commissioner's decision to the Tribunal, which also dismissed the appeal. The Revenue contended that penalties should be levied even on an estimated income basis. However, the High Court, citing various judgments, reiterated that penalties under Section 271(1)(c) cannot be imposed when additions are made on an estimated basis. The High Court upheld the Tribunal's decision, dismissing the Revenue's appeals.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that penalties under Section 271(1)(c) cannot be levied when additions are made on an estimated basis, as established by previous judgments. The appeals filed by the Revenue were dismissed based on this settled proposition of law.