PANDIAN ABILASH,CHENNAI vs. ITO, NCW-4(1), CHENNAI

1. This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 27.11.2024 for the Assessment Year (hereinafter referred to as "AY”) 2015-16 confirming the penalty levied u/s.271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as "the Act”).

The brief facts as noted by the AO are that the assessee has made payment against credit card bills of Rs.4,22,050/- and has deposited cash of Rs.52,04,070/- in the AY 2015-16 and that the assessee didn’t file return of income (RoI). The AO had given various notices to the assessee and took note of the fact that the assessee is engaged in the business of finance [to be a loan provider] and has collected back the principal- amount & interest from them in cash, which are deposited in his bank account. The AO issued notice u/s.148 of the Act, in response to which, the assessee is noted to have filed RoI wherein the AO noted that the assessee has shown ‘income from other sources’ of Rs.3,12,240/- and didn’t disclose any ‘income from business & profession’. The AO noted that the total amount credited in his bank account was to the tune of Rs.84,90,866/- and according to the AO, in the facts of the case in hand, provisions of Sec.44AD are applicable and therefore, according to him, 8% of the total turnover of Rs.84,90,866/- which is equal to Rs.6,79,269/- need to be added to the total income under the head ‘income from business’. And after giving show cause notice (SCN) to the assessee, the AO estimated 8% of the turnover of Rs.84,90,866/- i.e.

Rs.6,79,269/- which was added to the total income of the assessee by order dated 31.01.2023. Thereafter, the AO is noted to have issued notice to the assessee for levy of penalty u/s.271(1)(c) of the Act; and levied penalty of Rs.1,20,590/-. On appeal, against the penalty levied by the AO, the Ld.CIT(A) dismissed the same.

Aggrieved by the aforesaid decision of the Ld.CIT(A), the assessee is before us.

We have heard both the parties and perused the material available on record. The aforesaid stated facts are not disputed and hence, not repeated for the sake of brevity. The short question is that whether on the facts discussed (supra), the levy of penalty u/s.271(1)(c) of the Act for concealment of particulars of income is tenable when the AO in the first place has resorted to estimate the income of the assessee. Bearing in mind the fact that quantum addition was purely on estimated basis with inherent subjectivity involved, we are of the view that the penalty is not warranted u/s.271(1)(c) of the Act and also rely on the decision of the Hon’ble Madras High Court in the case of CIT v. P. Rojes reported in [2013] 356 ITR 703 (Madras HC) wherein the Hon’ble High Court observed that since the levy of penalty is based on the estimation of income, there can’t be any imposition of penalty based on the estimation of income. Therefore, we direct the AO to delete the penalty of Rs.1,20,590/-.