DEEP CONSTRUCTION CO,GANDHIDHAM vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE GANDHIDHAM, GANDHIDHAM

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ITA 412/RJT/2026Status: DisposedITAT Rajkot10 July 2026AY 2012-136 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that penalty under section 271(1)(c) cannot be imposed on an addition or disallowance that is made on an ad-hoc or estimated basis. Since the confirmed disallowance of Rs. 1,50,000/- was an estimate, the penalty was deleted.

What were the facts?

The assessee's appeal pertains to a penalty levied under section 271(1)(c) of the Income Tax Act. The penalty was initiated due to additions made during assessment, including introduction of fresh capital, disallowance of depreciation, defects in books of accounts, and disallowance of partner interest expenses.

What were the issues?

Whether penalty under section 271(1)(c) is leviable on an addition/disallowance that is estimated or ad-hoc.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC”

Before: Dr. Arjun Lal Saini

For Appellant: Shri Abhimanyu Singh Yadav, Ld. Sr. DR
For Respondent: Shri Abhimanyu Singh Yadav, Ld. Sr. DR
Hearing: 10/07/2026

आदेश / ORDER Per, Dr. Arjun Lal Saini, AM : Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2012-13, is directed against the order u/s 250 of the Act, passed by the Learned Commissioner of Income Tax(Appeal), in short “the Ld. PCIT”], dated 28.01.2026, which in turn arises out of penalty order passed by the Assessing Officer (in short ‘the assessing officer”) u/s 271(1) (C ) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), vide order dated 25.06.2024.

2.

Grounds of appeal raised by the assessee, are as follows: “1. The penalty order under section 271(1)(c) of the Income Tax Act, 1961 is bad in law.

ITA No. 412/RJT/2026 Deep Construction Co. 2. The Learned Assessing officer has erred in law as well as on facts in levying the penalty of Rs.46,350/- u/s. 271(1)(c) of the Act. The Ld.CIT(A) has erred in law as well as on facts in confirming the same.” 3. Brief facts qua the issue are that the assessee has filled original return of income on 30.09.2012, declaring total income of Rs.1,07,08,850/-. Thereafter the case was selected for scrutiny through CASS and after giving proper opportunity of being heard the assessment was completed u/s 143(3) of the I.T. Act vide order dated 24.12.2014. The assessing officer, vide the assessment order has made the following additions: (i) Introduction of fresh capital by partners: Rs. 1,20,00,000/- (ii) Disallowance of depreciation Rs.3,67,800/- (iii) Defects in the books of accounts: Rs.1,00,00,000/- (iv) Disallowance of partner interest expenses: Rs.3,05,430/-

4.

During the course of the assessment proceedings penalty proceedings u/s 271(1)(c) was also initiated for concealment of income and thereby furnishing inaccurate particulars of income. Being aggrieved, the assessee had filed appeal before the Ld.CIT(A) and the Ld.CIT (A) vide order u/s 250 dated 19.06.2023 has following observations and directions. “(i) The Ld.CIT (A) has directed to allow the depreciation on dumper at the rate of 30% and the addition in this context is to be deleted. (ii) On the issue of adhoc disallowance the Ld.CIT(A) has directed that the expenditure disallowance is restricted to Rs. 50,00,000/-. (iii) On the issue of introduction of fresh capital the Ld.CIT(A) has directed that the addition of Rs.1,20,00,000/- as introduction of capital by partners vide cash is upheld as unexplained cash credit u/s 68, (iv) And lastly Addition on interest on capital of Rs.3,05,430/- was deleted by the L.CIT(A)”. 5. Further, being aggrieved, the assessee had filled appeal before the Ld. ITAT and accordingly the Ld. ITAT has passed the order having ITA No.264/RJT/2023 vide order dated 23.02.2024.The Ld.ITAT vide above order has following observations: “(i) On the issue of the introduction of capital the ITAT hold that the addition made to the income of the assessee as unexplained capital of partners, is not sustainable and the same is therefore directed to be deleted. Page 2 of 6

ITA No. 412/RJT/2026 Deep Construction Co. (ii) In the issue of adhoc disallowance the Ld.ITAT has directed the assessing officer to restrict the expenditure to Rs.1,50,000/-.”

As such, during the penalty proceedings, the assessee was issued show cause notice u/s 271(1)(c) of the Act, for concealment of income and furnishing inaccurate particulars of income. 6. The assessing officer, in the light of the above facts and the circumstances and the position of law emerging from various courts of law, it was held that the assessee has failed to make out a case for avoiding imposition of penalty in its case as the primary onus in the case in terms of Explanations to section 271(1) (c) of the I.T. Act has not been discharged by assessee. Accordingly, the assessing officer is satisfied that this is a fit case for imposition of penalty. Further, had the return not been taken up for scrutiny, the assessee would have succeeded in evading payment of taxes on the said amount of addition. Accordingly, the provisions of Explanation 1 to section 271(1) (c) would come into play. Explanation 1-Where in respect of any facts material to the computation of the total income of any person under this Act. (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed or inaccurate furnishing of income. The assessee has failed to file particulars of income by filling any return of income and failed to furnish any explanations and thus resulted in concealment of its income. Thus the provisions of section

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ITA No. 412/RJT/2026 Deep Construction Co. 271(1)(c) is clearly attracted in the assessee's case as the assessee failed to offer the said incomes for taxation with a dishonest intention to conceal its income and thus evaded tax. Also during the course of penalty proceedings the assessee has failed to offer any plausible explanation in this regard thus the assessee has failed to make full and true disclosure of the facts while computing its income and thereby concealing its taxable income. Considering the facts and circumstances discussed above, the assessing officer is of the opinion that this is a fit case for imposition of penalty u/s. 27(1)(c) of the Act. Therefore, the assessing officer imposed a penalty u/s 271(1)(c) of the I. T. Act, 1961 @100% of the tax sought to be evaded at Rs.46,350/-. 7. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the learned CIT(A), who has confirmed the penalty imposed by the assessing officer. The ld.CIT(A) noticed that Hon'ble ITAT Rajkot in its order vide ITA No. 264/RJT/2023 dated 23/02/2024 has directed the assessing officer to restrict the disallowance of expenditure to Rs. 1,50,000/-. Accordingly, the penalty u/s 271(1)(c) was levied by the assessing officer since the assessee failed to file particulars of income by not filing the return and failed to furnish any explanation resulting in concealment of income. Therefore, it was held by ld.CIT(A) that the assessing officer has correctly levied penalty of Rs. 46,350/- for concealing the particulars of income u/s 271(1)(c) of the Act.

8.

Aggrieved by the order of the Ld. CIT(A), the assessee is in further appeal before this Tribunal. I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the Ld. CIT(A) and other materials brought on record. Shri Vimal Desai, Ld. Counsel for the assessee submitted that Hon’ble

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ITA No. 412/RJT/2026 Deep Construction Co. ITAT has made an ad hoc/estimated disallowance of Rs.1,50,000/-. Therefore, on such ad hoc disallowance, no penalty u/s 271(1)(c) should be levied. The penalty was levied on the ad hoc/estimated disallowance of Rs.1,50,000/-, therefore, there is no conscious concealment of income and hence the penalty should be deleted. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para and is not being repeated for the sake of brevity.

9.

I have considered submissions of both the parties and noted that in the first appeal, the Id. CIT(A) restricted the disallowance to Rs. 50,00,000/- on the ground that a reasonable estimate was required to be made. In the further appeal before the ITAT, the disallowance was restricted to Rs. 1,50,000/-, based on the similar disallowance made in the preceding A.Y. 2010- 11. The assessing officer has levied the penalty of Rs. 46,350/- on the above confirmation of the disallowance of Rs.1,50,000/- by the ITAT. I note that the disallowance was made in an ad-hoc manner and finally it was partly confirmed resorting to the estimates.It is a settled position of law that no penalty u/s 271(1)(c) of the Act is imposed where the addition/disallowance represents an estimate. The reference may be made to the following judgments in this regard: (i)P&H High Court in the case of CIT vs. Sangrur Vanaspati Mills - 303 ITR 53 approved by Hon'ble Supreme Court in 308 ITR (st.) 18 (SC). (ii)Gujarat High Court in the case of Subhash Trading Co. 221 ITR 110 (Guj.). (iii)Gujarat High Court in the case of Navjivan Oil Mills vs. CIT (2001) - 252 ITR 417 (Guj.). I also find that the disallowance of Rs. 1,50,000/- confirmed is a lump sum disallowance and such a kind of disallowance is neither concealment nor

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ITA No. 412/RJT/2026 Deep Construction Co. furnishing of inaccurate particulars. The penalty u/s 271(1)(c) is never automatic on confirmation of any addition/disallowance and therefore, penalty should not be levied merely because a part of the addition/disallowance was eventually confirmed without looking into the facts of the case and nature/manner of the addition/disallowance sustained. Hence, I delete the penalty under section 271(1)(c) of the Act, and allow the appeal of the assessee.

10.

In the result, the appeal of the assessee is allowed.

Order is pronounced in the open Court on 10/07/2026.

Sd/- [ Dr. Arjun Lal Saini ] लेखा सद�य/Accountant Member //True Copy// राजकोट/Rajkot िदनांक/ Date: 10/07/2026 Copy of the order forwarded to : 1. The assessee 2. The Respondent 3. CIT 4. The CIT(A) 5. DR, ITAT, RAJKOT 6. Guard File By order

Sr. Private Secretary ITAT, Rajkot

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