THE INCOME TAX OFFICER, WARD 1(7) vs. ASSOCIATED ENGINEERING CORPORATION

PDF · subscribers
TAXAP/1663/2007HC GujaratGJHC24041513200723 December 2014Bench: HONOURABLE MR. JUSTICE KS JHAVERI,HONOURABLE MR. JUSTICE K.J.THAKER6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Income Tax Appellate Tribunal was right in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act on the ground that the income was determined on an estimate basis. The Court referred to its own decision in a similar case (Tax Appeal No. 461/2000) and the principle laid down in Commissioner of Income Tax vs. Krishi Tyre Retreading and Rubber Industries, which stated that if an addition is sustained purely on an estimate basis, and no positive fact or finding supports it, then no penalty under Section 271(1)(c) can be levied on such guesswork or estimation. The ITAT's observation that the assessment was a simple case of estimating income at 30% without examining individual expenditure claims, and that the Revenue authorities themselves treated it as such, further supported the deletion of penalty. The High Court answered the substantial question of law in favor of the Revenue and against the assessee.

What were the facts?

The Income Tax Officer (appellant) filed appeals against the Income Tax Appellate Tribunal's (ITAT) order dated February 28, 2007. The ITAT had allowed the assessee's (Associated Engineering Corporation) appeals in ITA Nos. 425/Ahd/2001, 429/Ahd/2001, and 427/Ahd/2001. The assessee had filed returns for assessment years 1983-84, 1982-83, and 1984-85, declaring total incomes of Rs. 7,36,941/-, Rs. 78,254/-, and Rs. 35,091/- respectively. Assessment orders were passed, and the assessee's appeals to the CIT(A) were dismissed. The ITAT then allowed the assessee's appeals, leading to the present appeals by the Revenue.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in deleting penalty imposed under Section 271(1)(c) of the Income Tax Act on the ground that income is determined on an estimate basis? Assessee's Contention: The judgment does not record specific contentions made by the assessee in these appeals. However, the ITAT's reasoning, as quoted, suggests the assessee argued that penalty under Section 271(1)(c) was not justified as the assessment was based on an estimation of income (30%) without delving into individual claims of expenditure or substantiating concealment. The ITAT's deletion of penalty was based on this premise. Revenue's Contention: The judgment does not explicitly detail the Revenue's arguments. However, the framing of the substantial question of law by the High Court indicates the Revenue's challenge to the ITAT's deletion of penalty, implying they argued that penalty was leviable despite the income being determined on an estimate basis.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

O/TAXAP/1663/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1663 of 2007 With TAX APPEAL NO. 1672 of 2007 TO TAX APPEAL NO. 1673 of 2007

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ THE INCOME TAX OFFICER, WARD 1(7)....Appellant(s) Versus ASSOCIATED ENGINEERING CORPORATION....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1 MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1 ================================================================ Page 1 of 6

O/TAXAP/1663/2007 JUDGMENT CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 23/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these appeals, the appellant has challenged the judgment and order dated 28.2.2007 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘C’ in ITA No. 425/Ahd/2001, in ITA No. 429/Ahd/2001 and ITA No. 427/Ahd/2001. 2. While admitting these appeals on 14.12.2007, this Court has framed the following substantial question of law: “Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in deleting penalty imposed under Section 271(1)(c) of the Income Tax Act on the ground that income is determined on estimate basis ? 3. The facts of Tax Appeal No. 1663/2007 are are that the return of income was filed on 30.9.1986 for assessment year 1983-1984 on 16.10.1982 declaring total income of Rs. 7,36,941/-. In Tax Appeal No. 1672/2007, the Page 2 of 6

O/TAXAP/1663/2007 JUDGMENT return of income was filed on 16.10.1982 for assessment year 1982-83 showing total income of Rs. 78,254/-, and in Tax Appeal No. 1673/2007, the return of income was filed on 30.9.1986 for assessment year 1984-85 showing total income of Rs. 35,091/-. Thereafter considering the material on record, the assessment orders came to be passed in all the matters. Against the said assessment orders, the assessee has preferred appeals before the CIT(A) which came to be dismissed. Against the order of CIT(A), the assessee preferred appeals before the ITAT which came to be allowed. Being aggrieved by the order of ITAT, the Revenue has preferred present Tax Appeals before this Court. 4. We have heard the learned advocates appearing for the respective parties and considered the submissions. The identical issue came up for consideration before this Court in Tax Appeal No. 461/2000 which came to be decided by this Court on 5.11.2014. This court has observed in para 4.1, 6 and 6.1, as under: 4.1 Learned advocate for the appellant also submitted that the Tribunal has erred in upholding the penalty levied u/s 271(1)(c ) of the Act by the Page 3 of 6

O/TAXAP/1663/2007 JUDGMENT respondent in respect of alleged unaccounted gross profit earned out of alleged unaccounted sale of silver ornaments. In support of his submission, reliance has been placed on a decision reported in the case of Commissioner of Income Tax vs. Krishi Tyre retreading and Rubber Industries reported in [2014] 360 ITR 580 and Naresh Chand Agarwal vs. Commissioner of Income- Tax reported in [2013] 357 ITR 514. 6. Heard both the parties and gone through the material available on record. In the instant case, we are of the opinion that assessment made is just and proper. The statements made in the affidavits are not based on any record or corroborated with cogent evidence. The presumption raised by the papers which were seized from the custody of the appellant had not been rebutted. Therefore, the issues raised in appeals no. 461 to 464 of 2000 are required to be answered in the affirmative and against the assessee. 6.1 So far as the issue involved in appeals no. 833 to 836 of 2005 is concerned, in view of the decisions Page 4 of 6

O/TAXAP/1663/2007 JUDGMENT cited hereinabove by learned advocate for the appellant we are of the opinion that the penalty has been wrongly imposed under Section 271(1) (c) of the Act. In the case of Krishi Tyre Retreading and Rubber Industries (supra), it has been held that as the addition had been sustained purely on estimate basis and no positive fact or finding had been had been found so as to even make the addition which was a pure guess work, no penalty under section 271(1)(c) of the Act could be said to be leviable on such guess work or estimation. We therefore answer the issue involved in appeals no. 833 to 836 of 2005 in the negative and in favour of the assessee. 5. The Tribunal in para-16 has observed as under: “16. In our opinion, it is a simple case of estimating the income of the assessee at 30% without going into the individual claim of expenditure made by the assessee. It may be that there is no evidence with the assesee to substantiate its claim but since that has not been the basis of assessment as finally made,it would not be proper to hold the assessee as guilty of concealment of income and was of claiming bogus expenditure,which has not been the basis of the assessment. Page 5 of 6

O/TAXAP/1663/2007 JUDGMENT It is a bare simple case of estimate of income of the assessee at 30% and has been so understood by the Revenue Authorities, viz. When the CIT(A) states “it is futile to deal individually whether payments made to Mr. Pathan are genuine or what should be overhead expenses and secret commission.” The levy of penalty, in these circumstances, in our opinion, is not justified, they are accordingly deleted.” 6. In that view of the matter, the question is answered in favour of the Revenue and against the assessee. It is held that the Income Tax Appellate Tribunal is right in deleting penalty imposed under Section 271(1) (c) of the Income Tax Act on the ground that income is determined on estimate basis. All these Tax Appeals are dismissed. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 6 of 6

More judgments on Section 271(1)(c)

All 25,141 judgments and leading authorities on Section 271(1)(c) →

Recent GST High Court judgments

Search GST case law →