M/S N N JEWELLERS,JAIPUR vs. INCOME TAX OFFICER, WARD-2-1, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh jes'k lh 'kekZ] ys[kk lnL; ds le{k BEFORE: SHRI RAMESH C SHARMA, ACCOUNTANT MEMBER vk;dj vihy la-@ITA Nos. 63 to 68/JP/2019 fu/kZkj.k o"kZ@Assessment Years : 2005-06 to 2010-11 cuke M/s N N Jewellers, I.T.O., Vs. 3261-3262, Majid Mansion, Ward 2(1), Nawab Ka Chouraha, Ghat Gate, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFN 3331 J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vijay Goyal (FCA) jktLo dh vksj ls@ Revenue by : Ms. Anuradha (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 20/03/2019 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 26/03/2019 vkns'k@ ORDER PER: R.C. SHARMA, A.M. These are the appeals filed by the assessee against the different orders of the ld.CIT(A)-1, Jaipur dated 02/11/2018 for the A.Y. 2005-06 to 2010-11 in the matter of imposition of penalty U/s 271(1)(c) of the Income Tax Act, 1961 (in short the Act).

3. It was argued by the ld AR of the assessee that the penalty proceedings were initiated without specifying the limb for reasons in the penalty notice to impose the penalty i.e. whether the penalty was initiated for concealment of particulars of income or for furnishing inaccurate particulars of income. Thereafter the penalty was levied by holding that the assessee had furnished the inaccurate particulars of income. Therefore, the initiation and imposing of penalty proceedings is wrong, bad in law, in valid and void ab initio. The notice u/s 271 should be specific on imposing of penalty u/s 271(1)(c) of Income Tax Act, 1961 i.e. concealed particulars of income or furnishing inaccurate particulars of income. In this regard the reliance is placed on the following decisions: - i) Hon’ble Karnataka High Court in the case of CIT & others Vs M/s SSA’S EMERALD MEADOWS reported in 2015 (11) TMI 1620 –, wherein Hon’ble Court has held that:- “3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Asses sing Officer under Section 274 read with Section 271(1)( c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX - VS - MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.

4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of ITA 63 to 68/JP/2019 3 M/s N N Jewellers Vs ITO

law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”

The department has filed SLP in Hon’ble Supreme Court which has been dismissed. Therefore, Hon’ble Supreme Court has approved the findings made by Hon’ble Karnataka High Court in the case of CIT Vs SSA’s Emerald Meadows And CIT vs Manjunatha Cotton & Ginning Factory & other [2013] 359 ITR 565. Hon’ble Karnataka High Court has passed detailed order on this issue in the case of CIT vs Manjunatha Cotton & Ginning Factory & other [2013] 359 ITR 565. The concluding para of the order is as under:-

“CONCLUSION

a) Penalty under Section 271(1)(c) is a civil liability. b) Mensrea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.

ITA 63 to 68/JP/2019 4 M/s N N Jewellers Vs ITO g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(1)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation 1B to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.

(p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.

ITA 63 to 68/JP/2019 5 M/s N N Jewellers Vs ITO r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings. ii) Recently Hon’ble ITAT in the case Neha Sharma v/s ITO, Ward 2(3), Jaipur in for AY 2007-08 vide order dated 08/03/2019 held that (PB Page 172-181) :-

“15. We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld. AR and ld. DR during the course of hearing before us in the context of factual matrix of the case. We had also perused the notice issued U/s 274 read with Section 271 of the Act dated 23/3/2016 as placed on the record. It is clear from the notice so issued that the Assessing Officer had levied charge of concealed the particulars of income or furnished inaccurate particulars of such income. In view of the judicial pronouncements discussed hereinbelow, the notice issued under section 274, read with Section 271 (1) (c) of the Income Tax Act, 1961, should specify under which limb of Section 271 (1) (c) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. In the absence of which no penalty should be levied on the assessee as determination of such limb is sine qua non for imposition of penalty under section 271 (1) (c) of the Act.

"61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment furnishing inaccurate particulars of income are different Thus, the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering Works reported in [1980] 122 ITR 306 (GUJ) and the Delhi High Court in the case of CIT v. Virgo Marketing P Ltd reported in [2008 171 Taxman 156 has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment then the notice has to be appropriately marked Similar is the case for furnishing inaccurate particulars of income. "(p) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income. The standard

ITA 63 to 68/JP/2019 7 M/s N N Jewellers Vs ITO proforma without striking of the relevant clauses will lead to an inference as to non-application of mind 19. Thereafter, in so far as the manner in which the statutory notice was required to be issued, the Hon'ble Court concluded thus: (p) Notice u/s 274 of the Act should be specifically state the grounds mentioned in section 271(1)(c),i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income.

66. In view of the aforesaid law, we are of the view that the Tribunal was justified in holding that the entire proceedings are vitiated as the notice issued is not in accordance with law and accordingly justified in interfering with the order passed by the appellate authority as well as the assessing authority and in setting aside the same. Hence, we answer the substantial questions of law framed in this case in favour of the assessee and against the Revenue.

Reliance was next placed upon another judgment of the Hon'ble

Karnataka High Court in the case CIT v. SSA'S Emerald Meadows

(Income Tax Appeal No. 380 of 2015 decided on 23.11.2016). In this case also similar situation arose in as much as the Hon’ble Court was required to adjudicate on the following substantialquestion:

(1) Whether, omission of assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?" 22. The aforesaid question was dealt with by the Hon’ble Court in favour of the assessee in the followingwords:

furnishing of inaccurate particulars of income. The Tribunal while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income-tax vs. Manjunatha Cotton And Ginning Factory (2013) 359 ITR 565.

4. In our view since the matter is covered by judgment of the Division Bench of this Court we are of the opinion no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”

8. In view of the above, the question as framed do not give rise to any substantial question of law Thus, not entertained" 25. The Hon'ble Supreme Court in Dilip N. Shroff v/s JCIT, [2007] 291 ITR 519 (SC), has observed that while issuing the notice under section 274 r/w section 271, in the standard format, the Assessing Officer should delete the inappropriate words or paragraphs, otherwise, it may indicate that the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or had furnished inaccurate particulars of income. This, according to the Hon'ble Supreme Court, deprives the assessee of a fair opportunity to explain its stand, thereby, violates the principles of natural justice. As held by the Hon'ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), the aforesaid principle laid in Dilip N. Shroff (supra) still holds good in spite of the decision of the Hon'ble Supreme Court in UOI v/s Dharmendra Textile Processors (2008) 306 ITR 277 (SC). The Hon'ble Jurisdictional High Court in CIT v/s Smt. Kaushalya & Ors., [1995] 216ITR660 (Bom), observed that notice issued under section 274 must reveal application of mind by the Assessing Officer and the assessee must be made aware of the exact charge on which he had to file his explanation. The Court observed,

ITA 63 to 68/JP/2019 9 M/s N N Jewellers Vs ITO vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity as he is unaware of the exact charge he has to face. The Hon'ble Jurisdictional High Court in Samson Perinchery (supra), following the decision of Hon'ble Karnataka High Court in CIT v/s Manjunatha Cotton & Ginning Factory, [2013] 359 ITR 565 (Kar.), held, order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated.

iii) Similarly in the case of partner of assessee Shri Gulam Farooq Ansari Hon’ble ITAT Jaipur Bench had allowed the appeal in favour of assessee vide order dated 23/04/2018 and cancel the penalty so imposed by AO (The Copy of order at Pb Page 132- 140): - iv) Hon’ble High Court of Rajasthan in the case of Shevata Construction Co Ltd in The finding of Hon’ble High court at Para 9 is as under (Copy at PB Page182- 184) :-

“…… Taking into consideration the decision of the Andhra Pradesh High Court which virtually considered the subsequent law and the law which was prevailing on the date the decision was rendered on 27.08.2012. In view of the observation made in the said judgement, we are of the opinion that the contention raised by the appellant is required to be accepted and in the finding of Assessing officer in the assessment order it is held that the A.O. has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate

ITA 63 to 68/JP/2019 10 M/s N N Jewellers Vs ITO particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order….” v) Hon’ble ITAT Jaipur Bench, Jaipur in its judgment in ITA 878/JP/2013 dated 11.03.2016 in the case of Shankar Lal Khandelwal Vs DCIT held that when assessing Officer has mentioned at the time of initiation of penalty proceeding under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs than the initiation of penalty proceedings cannot be considered as per law and Assessing Officer did not have any jurisdiction to impose penalty U/s 271(1)(c) of the Act. vi) Hon’ble ITAT in its judgment in case of Narayana Heights & Towers, Vs. ITO Ward-2-4 Jaipur has canceled the penalty by holding that (Copy at PB Page 143- 152):- “3.2. We have heard the rival contention, perused the material available on record and gone through the orders of the authorities below. For the sake of clarity the relevant contents of the Assessment Order are reproduced as under: “Penalty u/s 271(1)(c) is separately as assessee has concealed the income.” Relevant contents of the Penalty Order are reproduced as under:- ”As the assessee had not filed any appeal against order of the AO and it appears that the assessee is satisfied with the order passed by the AO. Therefore, it appears that the assessee has nothing to say and has no objection regarding imposing the penalty u/s 271(1)(c) of I.T. Act, 1961. Therefore, I impose a penalty of equal to 100% of tax sought to be evaded on account of the above acts of the assessee of Rs. 34,05,436/- i.e. 100% tax evaded.” In the light of the above, we need to examine whether assessment order and the penalty order comply with the provisions of section 271(1)(c) of the Act. We find that on page 3 of the assessment order, the assessing order, AO observed as under:- 14 ITA No. 1033/JP/2016 Narayana Heights & Tower. “As the assessee has concealed/furnished the inaccurate particulars of income therefore, penalty u/s 271(1)(C) is also initiated.” 3.3. As per section 271 (1)(c), the assessing officer is empowered to impose penalty if in the course of any proceedings under this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. From the above provision it is clear that there has to be a specific satisfaction by the Assessing Officer that the assessee is guilty of concealing the particulars of his income or furnishing inaccurate particulars of such incomes. 3.4. From the above, it is clear that the assessing officer should give a specific

ITA 63 to 68/JP/2019 11 M/s N N Jewellers Vs ITO finding. In the present case, in the assessment order as noted above the assessing officer has stated that the assessee has concealed/furnished the inaccurate particulars of income. Therefore, the penalty under Section 271(1) (c) was also initiated, from this it cannot be inferred whether there is specific charge of concealing the particulars of income or furnished the inaccurate particulars of such income Law is well settled that the assessing officer has to come to a definite satisfaction whether the assessee has concealed the income of particulars or furnished the inaccurate particulars of income. The Hon’ble Karnataka High Court in the case of CIT and Another Vs. Manjunatha Cotton and Ginning Factory,359 ITR 565(Kar.) has held that the notice u/s 274 of the Act should specifically state as to whether penalty is being proposed for concealment of particulars of income or inaccurate particulars of income. In the present case notice under section 274 dated 25/3/2015 enclosed at paper book page 16 reads as under: “Penalty Notice Under Section 274, Read with Section 271 of the IT Act. 1961” 15 Narayana Heights & Tower. Whereas in the course of proceedings before me for the Assessment Year 2012-13. It appears to me that you have:- Read With Section 271(1)(c) concealed particulars of income or furnished inaccurate particulars of income.” Therefore, there is no specific charge by the Assessing Officer. Further, it is noted that the Assessing Officer in penalty order (as noted hereinabove) has proceeded on the basis of the assumption that the assessee is satisfied with the assessment order. Therefore, it appears that the assessee has nothing to say and has no objection regarding the imposing of the penalty under section 271(1)(c) of the Act. In our considered view, the assessing officer was not justified in imposing the penalty on this basis, the action of the assessing officer is contrary to the provision of law.”

Further the Hon’ble Rajasthan High Court in the case of Pr. CIT of Wealth Tax-1 vs Narayana Heights and Towers in DB Income Tax Appeal No. 203/2017 order dated 17/08/2017 had confirmed the order of Hon’ble ITAT Jaipur Bench (Supra)(Copy at PB Page 141-142)

In the case of Shri Murari Lal Mittal order dated 09/11/16 has canceled the penalty on the same grounds following the decision of Shri Shanker Khandelwal. vii) Further reliance is also placed on Hon’ble ITAT Jaipur bench in the case of Shri Lal Chand Mittal vs The DCIT, Central Circle-3, Jaipur in vide order dated 29/12/2016

2.5. The ld CIT(A) confirmed that penalty by holding that:- a) The plea has not been taken before the ld. AO. It is admitted position of law that the plea of the assessee is taken on the basis of facts available on record and being the legal issue

ITA 63 to 68/JP/2019 12 M/s N N Jewellers Vs ITO the same can be taken at any stage of the proceedings. Being the co-terminus power vested to the CIT (A) he is also the authority to decide the issue raised before him. b) The dismissal of department’s SLP by Hon’ble Apex Court in the case of CIT Vs SSA’s Emerald Meadows is by a non speaking order:-

Ld CIT(A) failed to appreciate that Hon’ble Apex Court dismissed the SLP of the department by mentioning that “ we do not find any merit in this petition. The special leave petition is accordingly, dismissed.

Therefore, Hon’ble Supreme Court has approved the findings made by Hon’ble Karnataka High Court in the case of CIT Vs SSA’s Emerald Meadows And CIT vs Manjunatha Cotton & Ginning Factory & other [2013] 359 ITR 565 by mentioning that they have not find any merit in the petition of the department. c) Relying on decision of Third Member judgment in the case of Grass Field Farms & Resorts (P) Ltd Vs DCIT [2016] 176 taxmann.com 176 (Jaipur-Trib)(TM). The ld CIT(A) without appreciating the facts of assessee’s case relied upon above referred third member Judgment. In the case of Grass Field Farms & Resorts (P) Ltd Vs DCIT it has been clearly mentioned that the penalty may attract both the offences . i.e. the concealment of Income as well as furnishing of inaccurate particulars of income and therefore the assessing officer rightly initiated the penalty proceedings for both the offences. In penalty notice also both the offence were mentioned.

But in the assessee’s case, in the assessment order as well as in notice issued u/s 274 of Income Tax Act as noted above the assessing officer has stated that the assessee has concealed/or furnished the inaccurate particulars of income. Therefore, from this it cannot be inferred that the penalty was initiated for both the offences and since there is no specific charge of concealing the particulars of income or furnished the inaccurate particulars of such income, the initiation of penalty u/s 271(1)(c) is bad in law. Law is well settled that the assessing officer has to come to a definite satisfaction whether the assessee has concealed the income of particulars or furnished the inaccurate particulars of income. Further decision of Hon'ble Jurisdictional High Court in the case of Shevata Construction Co Pvt. Ltd (supra) will

ITA 63 to 68/JP/2019 13 M/s N N Jewellers Vs ITO prevail over the third member judgment wherein it has been held that the AO, has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order....." (Emphasis Supplied) d) The case of Shilpy Sharma v/s ITO in ITA No. 3728/Del./2014 for AY 2009-10 of Hon’ble ITAT is also not applicable in the case of the assessee as in such case the penalty was initiated on the income himself declared by the assessee. Further in this the Hon’ble ITAT find that the satisfaction of AO was discernible from the assessment order that the penalty proceedings were proposed to be initiated for furnishing inaccurate particulars of income but in the case of assessee the penalty proceedings were initiated by holding that “Penalty proceedings u/s 271(1)(c) of the Act is initiated for concealment of income/for furnishing inaccurate particulars of income.” e) The case in the case of K. P. Madhusudhana v/s CIT (2201) 118 Taxman 324 (SC) is also not applicable in the case of assessee as the same is on different facts and in view of subsequent decisions Hon'ble Jurisdictional High Court in the case of Shevata Construction Co Pvt. Ltd (supra) and decision of Hon’ble Apex court in the case of CIT Vs SSA’s Emerald Meadows. f) The decision of M/s Airen Metals Pvt. Ltd Jaipur v/s ACIT of Hon’ble ITAT is not relevant in the case of the assessee because in such case the appeal of the assessee was rejected on the ground that the assessee did not file any submission/explanation before the lower authorities. g) The case of Dinesh Kumar Vijay v/s ITO in ITA No, 58/JP/2016 is also applicable in the case of the assessee because in this case it was held by ITAT that “the initiation of penalty proceedings included both the offences and the show-cause notice also included both the offences, the assessee got the adequate opportunity to explain both the offences and therefore, there is no illegality in levying the penalty.”In the case of assessee the penalty was initiated without specifying the offence i.e. whether filed inaccurate particulars or concealed the particulars of income and in the order the penalty was imposed on a/c of furnishing the inaccurate particulars of income.

Further, the later decision of Hon'ble ITAT Jaipur in the case of Ms Neha Sharma Vs ITO would prevail over the old decisions.

ITA 63 to 68/JP/2019 14 M/s N N Jewellers Vs ITO Therefore, the concealment of income and furnishing inaccurate particulars of income, two are different defaults and they cannot be intermixed. Therefore, the order of Assessing Officer deserves to be set aside and penalty levied by Assessing Officer deserves to be cancelled.

“4. We have heard rival submissions and have carefully treaded through the entire record. We have found that the impugned penalty is based only on estimated additions. Besides that all additions have been deleted except for a small one of Rs. 1,62,240 which has been sustained. However, this addition is not the basis of imposition of penalty. Otherwise, also the sustained addition is also an estimated addition. The legal position in this regard has been succinctly given in the decision in the case of Dr. Hakeem S.A. Sajed Sattar v. Asstt. CIT [2009] 120 ITD 1 (Chennai). It has been held that on estimated addition, penalty under s. 271(1)(c) of the Act cannot be imposed because there can be no concealment in these cases, nor that the assessee has furnished inaccurate particulars of income. Any estimate is an opinion which is taken subjectively, when this difference of opinions leads to any addition, it cannot terminate into a penalty under s. 271(l)(c) of the Act. The decision of Shiv LalTak v. CIT

ITA 63 to 68/JP/2019 15 M/s N N Jewellers Vs ITO [2001] 251 ITR 373/[2002] 121 Taxman 99 (Raj.) of Hon'ble Rajasthan High Court is also relevant.

5. Thus, it is manifestly clear that the sustained additions are a result of estimated disallowances of expenses and estimated trading addition. Accordingly, by respectfully following the above judgments/orders and by applying their ratio decidendi to the facts of this case, we are left with no option but to confirm the impugned order of learned CIT(A), who has also deleted the impugned penalty on the similar reasoning.”

AY Gross Profit Net Addition Gross Profit Net Addition Gross Profit Net Addition Estimated by Estimated by Sustained Estimated by ITAT Sustained AO CIT(A) 2005-06 Rs. 33,83,182/- Rs. 29,41,395/- Rs. 13,76,284/- Rs. 9,34,497/- Rs. 7,40,657/- Rs. 2,98,780 (25% of (Rs. 33,83,182- (16% of Rs. (14.22% of 1,35,32,729) 4,41,787) 86,01,774) 52,08,563). 2006-07 Rs 28,22,742/- Rs. 23,77,539/- Rs. 17,67,605/- Rs. 13,22,402 Rs. 10,70,855/- Rs. 6,25,652 (25% of (Rs. 28,22,742- (16% of Rs. (14.22% of 1,12,90,969) 4,45,203) 1,10,47,533) 75,30,620). 2007-08 Rs 38,43,639/- Rs. 33,96,837/- Rs. 26,45,497/- Rs. 21,98,695 Rs. 12,98,334/- Rs. 8,51,532 (25% of (Rs. 38,43,639- (16% of Rs. (14.22% of 1,53,74,556) 4,46,802) 1,65,34,355) 91,30,339). 2008-09 Rs 41,56,251/- Rs. 36,58,369/- Rs. 22,82,560/- Rs. 17,84,678 Rs. 7,88,610/- Rs. 2,90,728 (25% of (Rs. 41,56,251- (16% of Rs. (14.22% of 1,66,25,006) 4,97,882) 1,42,66,001) 55,45,779). 2009-10 Rs 23,07,943/- Rs. 19,00787/- Rs. 16,62,834/- Rs. 12,55,678 Rs. 8,48,453/- Rs. 4,41,297 (25% of (Rs. 23,07,943- (16% of Rs. (15.33% of 92,31,773) 4,07,156) 1,03,92,716) 55,34,598). 2010-11 Rs 29,80,549/- Rs. 25,90,875/- Rs. 15,29,462/- Rs. 11,39,788 Rs. 9,20,908/- Rs. 5,31,234 (25% of (Rs. 29,80,549- (16% of Rs. (14.22% of 1,19,22,198) 3,89,674) 95,59,140) 64,76,145).

ITA 63 to 68/JP/2019 16 M/s N N Jewellers Vs ITO The AO had computed the penalty on income computed after relief provided by Hon’ble CIT(A). However ld CIT(A) had allowed the relief by directing the ld AO to compute the penalty on the net addition sustained by Hon’ble ITAT Jaipur. It had been settled law that on estimated addition, penalty under s. 271(1)(c) of the Act cannot be imposed because there can be no concealment in these cases, nor that the assessee has furnished inaccurate particulars of income. Any estimate is an opinion which is taken subjectively, when this difference of opinions leads to any addition, it cannot terminate into a penalty under s.

271(l)(c) of the Act. Further, it cannot be said that the process of imposition of penalty is automatic in the eventuality of estimated income.

All the attendant circumstances of the case must be carefully scrutinized.

The question whether penalty should be levied must be considered on the basis of the judicial determination. The mere fact of addition on an estimated basis, particularly when the assessment is made on the inference flowing from the inability of the assessee to establish the case pleaded by him, will not be sufficient for the purpose of imposition of penalty. The degree of proof required for the imposition of penalty is quite different from and is of a much higher order than that required for the purpose of making addition on an estimated basis. Besides, addition on the basis of estimate does not ipso facto supply evidence of ITA 63 to 68/JP/2019 17 M/s N N Jewellers Vs ITO concealment so as to justify penalty. Finding of concealment cannot be based on estimation alone. In the facts of the instant case, the factum of concealment was not proved beyond the shadow of doubt. Under these facts and circumstances of the case, applying the proposition of law laid down by the Hon’ble Jurisdictional High Court, I do not find any justification for imposition of penalty U/s 271(1)(c) of the Act in all the years under consideration. Hence, the penalty is hereby deleted.

Order pronounced in the open court on 26/03/2019