2025 (7) TMI 1420 - AT - Income Tax

Penalty u/s 271(1) (c) - unexplained income in guise of agriculture income - HELD THAT - Neither the AO nor CIT(A) and nor the Hon ble ITAT has given a finding that the details furnished by the assessee is found to be incorrect or erroneous or false and as such question of initiation of penalty u/s 271(1)(c) of the Act does not arise. In order to justify levy of penalty there must be some material or circumstances leading to reasonable conclusion that the amount of conscious concealment or act of furnishing of inaccurate particulars. As in the case of National Textiles 2000 (10) TMI 19 - GUJARAT HIGH COURT observed that In order to justify the levy of penalty two factors must co-exist (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee s income. It is not enough for the purpose of penalty that the amount has been assessed as income and (ii) the circumstances must show that there was i.e. conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. As in the case of CIT vs. Arkay Saree Museum 1990 (8) TMI 97 - BOMBAY HIGH COURT held that; mere addition to income on estimated basis would not constitute basis for levy of penalty u/s. 271(1)(c) unless the revenue proves the ingredients of concealment or that of furnishing of inaccurate particulars. As in Sangrur Vanaspati Mills Ltd. 2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT held that when the addition of income is based on estimate penalty is not leviable. Based on these facts and circumstances we delete the penalty under section 271(1) (c) of the Act. Appeal of the assessee is allowed.

Summary

ISSUES:

Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 can be sustained when the addition to income is made on an estimated basis.Whether the assessee has committed "conscious concealment" or furnished "inaccurate particulars" justifying penalty under section 271(1)(c) of the Act.The validity of estimating agricultural income based on statistical or government data and subsequent judicial re-estimation in quantum proceedings.

RULINGS / HOLDINGS:

The penalty under section 271(1)(c) of the Act cannot be sustained where the addition is made on an estimated basis and there is no finding of concealment or furnishing of inaccurate particulars; "mere addition to income on estimated basis would not constitute basis for levy of penalty."Since the addition of Rs. 19,68,993/- was based on varying estimations by the Assessing Officer, CIT(A), and ITAT, and the assessee provided sufficient evidence regarding ownership and production, there was no "conscious concealment" by the assessee to justify penalty.The Tribunal's approach to re-estimate agricultural income on an ad hoc basis, considering improvements in agricultural inputs and rejecting rigid reliance on past statistical data, is appropriate and does not amount to concealment.

RATIONALE:

The Court applied the legal framework under section 271(1)(c) of the Income-tax Act, 1961, which mandates that penalty for concealment requires proof of "conscious concealment" or "furnishing of inaccurate particulars."Precedent from High Courts was relied upon, including the principle that "in order to justify the levy of penalty, two factors must co-exist: (i) material or circumstances leading to reasonable conclusion that the amount represents income; and (ii) conscious concealment or furnishing of inaccurate particulars."Judicial recognition was given to the inherent uncertainty in estimating agricultural income based on statistical data, with the Tribunal exercising discretion to adjust the estimate considering contemporary agricultural realities, thereby not treating such estimation as concealment.The decision aligns with established case law that additions based solely on estimates do not automatically trigger penalty provisions absent evidence of concealment.