C.I.T., CHANDIGARH-II vs. M/S DUA & ASSOCIATES PVT. LTD.

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ITA/529/2007HC Punjab & HaryanaPHHC01073237200712 March 2008Author: MR JUSTICE RAKESH KUMAR GARG,MR. JUSTICE SATISH KUMAR MITTAL5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeals filed by the Revenue. The Court reiterated a consistent view from a catena of its previous judgments that penalty under Section 271(1)(c) cannot be levied when additions to income have been made on an estimation basis. The Court cited its own decisions in Commissioner of Income Tax Vs. M. M. Rice Mills (253 ITR 17), Hari Gopal Singh Vs. Commissioner of Income Tax (258 ITR 85), Commissioner of Income Tax Vs. Metal Products of India (150 ITA 714), and Commissioner of Income Tax Vs. Dhillon Rice Mills (256 ITR 447) as reiterating this principle. Based on this settled proposition of law, the High Court found no grounds to interfere with the well-reasoned judgment of the Tribunal. The operative direction was the dismissal of the Revenue's appeals.

What were the facts?

The Revenue filed two appeals against the Income Tax Appellate Tribunal's (ITAT) order for assessment years 1997-98 and 1999-2000. The appeals concerned penalties levied under Section 271(1)(c) of the Income Tax Act, amounting to Rs. 1,61,400/- and Rs. 2,98,775/- respectively. The assessee, owning a hotel, had its income assessed under Section 143(3) with additions made for inflated food costs. The Assessing Officer (AO) estimated food cost at 45% of total sales, leading to additions for suppressed sales. The Commissioner of Income Tax (Appeals) restricted the additions. The ITAT had previously dismissed the Revenue's appeal on the quantum of additions. Subsequently, the AO imposed penalties, which were deleted by the Commissioner of Income Tax (Appeals) on the grounds that penalty proceedings were not properly initiated and that additions were based on estimation. The ITAT upheld the deletion of penalties.

What were the issues?

1. Whether, on the facts and circumstances and in law, the ITAT was correct in deleting the penalty under Section 271(1)(c) by holding that it was not leviable where income was assessed on an estimate basis, without examining the basis of estimation? Assessee's Contention: The judgment does not record specific arguments made by the assessee before the High Court. However, the Commissioner of Income Tax (Appeals) had observed that the AO failed to indicate the reasons for initiating penalty proceedings and that additions were made on an estimate basis, making penalty imposition impermissible. The ITAT upheld this reasoning. Revenue's Contention: The Revenue argued that the ITAT was incorrect in deleting the penalty solely on the basis that income was assessed on an estimate basis, without examining the specific basis of that estimation. The Revenue sought to challenge the ITAT's finding that penalty cannot be levied in cases of estimated additions.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

In the High Court for the States of Punjab and Haryana at Chandigarh … (i) ITA No.529 of 2007 Date of decision:12.3.2008 The Commissioner of Income Tax -II,Chandigarh Appellant Versus M/s Dua & Associates (P) Ltd. Chandigarh Respondent (ii) ITA No.531of 2007 Date of decision:12.3.2008 The Commissioner of Income Tax -II, Chandigarh Appellant Versus M/s Dua & Associates (P) Ltd. Chandigarh Respondent Coram: Hon’ble Mr.Justice Satish Kumar Mittal Hon'ble Mr.Justice Rakesh Kumar Garg Present: Mr.S.K.Garg Narwana, Advocate for the appellant-Revenue. Mr.Akshay Bhan, Advocate for the respondent. .... Rakesh Kumar Garg,J These two appeals filed by the Revenue are directed against the order dated 25.4.2007 of the Income Tax Appellate Tribunal, Chandigarh Bench-B, Chandigarh passed in ITA No.769/Chandi/2006 and 770/Chandi/206 for the assessment year 1997-98 and 1999-2000 raising common issues and having identical facts, therefore, these are being disposed of by one consolidated

order. The common issue involved in both these appeals relate to initiation of penalty levied by the Assessing Officer under Section 271 (1)(c ) of the Income Tax Act amounting to Rs. 1,61,400/- and Rs.2,98,775/- for the assessment year 1997-98 and 1999-2000 respectively. The assessee owns a hotel. During the course of assessment proceedings under Section 143(3), the Assessing Officer found that assessee had inflated the expenses on account of food cost. On the basis of food cost norm in the Hotel Industry and the information gathered from CITCO and Haryana Tourism, the Assessing Officer adopted the food cost at 45 % of the total sales and accordingly, addition on account of suppressed sale was made. Therefore, penalty proceedings under Section 271(1)(c ) for furnishing inaccurate particulars of income were initiated against the assessee. The assessee filed appeal before the Commissioner of Income Tax(Appeals) against the additions who vide order dated 5.3.2001 restricted the addition. The appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) on quantum was dismissed by the Income Tax Appellate Tribunal vide order dated 30.5.2005. Since the assessee had furnished inaccurate particulars of income to the extent of additions sustained by the Commissioner of Income Tax (Appeals)which on appeal was confirmed by the Tribunal, the penalty proceedings were taken up by the Assessing Officer, who vide his order dated 30.12.2005 imposed penalty at the rate of 100 % for the tax sought to be evaded. The Commissioner of substantial question of law:- “Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was correct in deleting the penalty u/s 271(1)(c ) by holding that the same was not leviable where the income was assessed on estimate basis, without examining the basis of estimation ? JUDGE

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