9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 109 - AT - Income TaxPenalty u/s. 271(1)(c) - addition made by AO merely on estimation - AO estimated net profit rate at 12% which got reduced to 8% by first appellate authority and to 6% by Tribunal - HELD THAT - In view of the order in Naresh Katare Contractor 2017 (11) TMI 2070 - ITAT AGRA relied upon assessee no penalty can be imposed against the assessee based on estimated addition. Thus we do not find any justification for imposition of impugned penalty against the assessee u/s. 271(1)(c) when the income of the assessee has been assessed on the basis of estimated profit. Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal are: - Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 can be imposed on an assessee when the addition to income is made solely on an estimated basis by applying a net profit rate? - Whether the procedure for issuance of penalty notice was in conformity with the law as laid down by the Supreme Court? - Whether the reduction of net profit rate by appellate authorities and the Tribunal impacts the validity of the penalty imposed for furnishing inaccurate particulars of income? - Whether estimation-based assessment justifies imposition of penalty for concealment of income under the relevant provisions of the Act? 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of penalty imposed on estimated income addition basis Relevant legal framework and precedents: Section 271(1)(c) of the Income-tax Act authorizes imposition of penalty for furnishing inaccurate particulars of income or concealment of income. However, judicial precedents have held that penalty cannot be levied when additions to income are based on mere estimation rather than concrete evidence of concealment. The Tribunal referred to coordinate Bench decisions including CIT vs. Raj Ban Singh and CIT vs. Aero Traders Pvt. Ltd. which establish that penalty is not leviable when income is assessed on estimated profit and subsequently reduced by appellate authorities. Court's interpretation and reasoning: The Tribunal observed that the Assessing Officer initially applied a net profit rate of 12% to estimate income, which was reduced to 8% by the first appellate authority and further to 6% by the Tribunal in earlier proceedings. In the present penalty proceedings, the penalty was imposed on the basis of the original estimated addition. The Tribunal emphasized that since the income was assessed on an estimated basis and the net profit rate was successively reduced by appellate fora, the penalty could not be sustained. Key evidence and findings: The key fact is the reduction of net profit rate from 12% (AO) to 8% (CIT(A)) and then to 6% (Tribunal) in earlier appeals, which was undisputed by the Revenue. This demonstrated that the income addition was not based on concrete evidence but on estimation subject to revision. Application of law to facts: Applying the principle that penalty cannot be imposed where income addition is based on estimation and not on concealment, the Tribunal held that the impugned penalty order was not justified. Treatment of competing arguments: The Revenue contended that penalty was justified due to furnishing of inaccurate particulars. However, the Tribunal distinguished the facts from cases where concealment was proved and relied on precedents to reject penalty on estimated income additions. Conclusion: Penalty under section 271(1)(c) cannot be imposed on an assessee when income addition is based solely on estimation by applying net profit rate, especially when such estimation is reduced on appeal. Issue 2: Compliance with procedural requirements for penalty notice Relevant legal framework and precedents: The Supreme Court has laid down strict procedural requirements for issuance of penalty notices, including that the notice must specify the particulars of the alleged inaccurate particulars or concealment. Court's interpretation and reasoning: The assessee contended that the penalty notice was not issued in conformity with the law. However, the Tribunal did not find sufficient grounds to delve into this aspect in detail, as the primary basis for setting aside the penalty was the estimation principle. Key evidence and findings: No specific findings were recorded on procedural infirmities in notice issuance beyond the assessee's submissions. Application of law to facts: Since the penalty was set aside on substantive grounds, the procedural issue was not determinative. Treatment of competing arguments: The Tribunal did not extensively consider Revenue's arguments on procedural compliance. Conclusion: No penalty can stand if substantive basis is lacking; procedural infirmities, while important, were not the primary ground for setting aside penalty in this case. 3. SIGNIFICANT HOLDINGS - "It is undisputed fact that the assessee's taxable income was assessed on estimated basis. In quantum appeal, before us, the net profit rate is reduced to 3% as against 6% estimated by ld. CIT(A) and 12.5% estimated by the AO... As such, there was no concealment of income and accordingly no penalty is imposable." - The Tribunal affirmed the principle that "penalty is not leviable when income was assessed based on estimated profit and substantially reduced by the Tribunal." - The Court concluded that "there being parity of facts involved in the present appeal, we do not find any justification for imposition of impugned penalty against the assessee u/s. 271(1)(c) of the Act when the income of the assessee has been assessed on the basis of estimated profit." - The appeal was allowed, and the impugned penalty order was set aside.
|
