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Facts
The assessee, a partnership firm, filed its return for AY 2013-14. Information was received about a large transfer from the firm's account to a partner's savings account. The Assessing Officer reopened the case, made additions under Section 40A(3) after reopening under Section 147, and subsequently levied penalty under Section 271(1)(c).
Held
The Tribunal held that the penalty under Section 271(1)(c) cannot be levied based on an estimated income, especially when the estimation was directed by the PCIT under Section 264. Following the High Court's decision in CIT v. P. Rojes, the penalty was deleted.
Key Issues
Whether penalty under Section 271(1)(c) of the Income Tax Act can be levied on income determined on estimation basis, particularly when such estimation was directed by a higher authority.
Sections Cited
271(1)(c), 148, 142(1), 40A(3), 147, 144B, 264
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Before: Shri S.S. Viswanethra Ravi&
O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
These three appeals filed by the assessee are directed against separate, but identical orders all dated 30.06.2024 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment years 2013-14, 2014-15 & 2015-16 passed under section 271(1)(c) of the Income Tax Act, 1961 [“Act” in short].
Since issues raised in these appeals are similar based on the same identical facts, with the consent of the both the parties, we proceed to hear the appeals together and pass consolidated order for the sake of convenience.
First, we shall take-up appeal in AY 2013- 14 for adjudication.
The assessee raised 3 grounds of appeal amongst which, the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in confirming the penalty levied under section 271(1)(c) of the Act in the given facts and circumstances of the case.
Brief facts leading to case are that the assessee is a partnership firm, doing contract works to the Public Works Department, State of Tamil Nadu being run by two partner viz., S. Balabaskar and S. Indramani with 50 percentage share each. The assessee filed return of income for the AY 2013-14 declaring net taxable income at ₹.7,48,540/-. The partner Shri S. Balabaskar has been maintaining saving bank account with the IDBI, K.K. Nagar, Madurai. The Respondent–Revenue had information that during the financial year 2012-13, an amount of ₹.1,61,57,000/- has been transferred from the current account of the firm maintained with Canara Bank to the savings account of the partner. The Assessing Officer reopened the case and issued notice under section 148 of the Act and in response to the notice, the assessee furnished ITR declaring the same particulars of income as already declared. Thereafter, the Assessing Officer issued notice under section 142(1) of the Act. Since there was no response, a show-cause notice was issued proposing to complete the assessment by making addition of ₹.1,86,97,500/- under section 40A(3) of the Act or to file objection, if any. Thereafter, the Assessing Officer completed the assessment under section 147 r.w.s. 144B of the Act by making addition of ₹.1,86,97,500/- under section 40A(3) of the Act disregarding the objections of the assessee.
The assessee preferred revision petition under section 264 of the Act before the ld. PCIT. The ld. PCIT set aside the assessment order and directed the Assessing Officer to estimate the net income at 8% on the total turnover of ₹.3,66,14,611/-. Accordingly, in pursuance to the direction of the ld. PCIT, the Assessing Officer assessed the net income of ₹.29,29,170/- being 8% on the total turnover of ₹.3,66,14,611/- and raised modified demand.
Subsequently, the Respondent–Revenue initiated penalty proceedings and issued show cause notice under section 271(1)(c) of the Act. After considering the submissions of the assessee, the Assessing Officer levied penalty under section 271(1)(c) of the Act of ₹.6,73,815/-. The ld. CIT(A) confirmed the penalty levied under section 271(1)(c) of the Act.
The ld. AR Shri R. Thulasiram, Advocate submits that in pursuance to the order under section 264 of the Act, the net income determined by the Assessing Officer and the modified demand raised by the Respondent–Revenue has been fully paid. He argued that the ld. PCIT directed to estimate the net income at 8% of the total turnover and drew our attention to the decision of the Hon’ble High Court of Madras in the case of CIT v. P. Rojes [2013 31 taxmann.com 253 (Madras) and submitted that penalty under section 271(1)(c) of the Act cannot be levied based on the estimation of income and prayed to delete the penalty levied under section 271(1)(c) of the Act.
The ld. DR Ms. E. Pavuna Sundari, Addl. CIT relied on the order passed by the ld. CIT(A).
Heard both the parties and perused the material available on record. Admittedly, in this case, the ld. PCIT directed the Assessing Officer to estimate the net income at 8% of the total turnover and thus, it is clear that the net income was determined on estimation basis. We have perused the case law placed on record in the case of CIT v. P. Rojes (supra), wherein, the Hon’ble High Court of Madras was pleased to hold that there cannot be any imposition of penalty based on estimation of income. In the present case also, the net income of the assessee was estimated at 8% in pursuance to the order of the ld. PCIT under section 264 of the Act and therefore, we are of the opinion that the Assessing Officer was not justified in levying penalty under section 271(1)(c) of the Act and thus, the penalty levied by the Assessing Officer and confirmed by the ld. CIT(A) is deleted for the AY 2013-14. Thus, the grounds raised by the assessee are allowed.
& 2288/Chny/2024 for AY 2014-15 & 2015-16
Similar issues on identical facts have been raised by the assessee in its appeals for AYs 2014-15 and 2015-16 in & 2288/Chny/2024 respectively and since, we have deleted the penalty levied under section 271(1)(c) of the Act for the AY 2013-14 in in view of the decision of the Hon’ble High Court of Madras, our findings would be equally applicable to the above assessment years under consideration. Thus, the above appeals of the assessee are allowed.
In the result, all the appeals filed by the assessee for AY 2013-14, 2014-15 & 2015-16 are allowed. Order pronounced on 10th January, 2025 at Chennai.