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Facts
The assessee filed its return for AY 2011-12. An assessment under Section 143(3) resulted in additions for various items, including undisclosed investment and unexplained money. The CIT(A) partially allowed relief, reducing the concealed income for penalty purposes from Rs. 27,13,534/- to Rs. 1,50,000/-. Penalty proceedings under Section 271(1)(c) were initiated for the concealed income, which the assessee appealed.
Held
The Tribunal held that penalty under Section 271(1)(c) is not leviable when additions are based purely on estimation, lacking concrete evidence of concealment, citing various High Court and Tribunal decisions. Additionally, the penalty notice issued under Section 274 read with Section 271(1)(c) was found defective as it included both limbs of Section 271(1)(c) without striking out the irrelevant one, thus vitiating the penalty proceedings. Consequently, the penalty order was set aside.
Key Issues
Whether penalty under Section 271(1)(c) can be imposed for additions based on estimation, and whether a penalty notice under Section 274 read with Section 271(1)(c) is valid if it ambiguously invokes both grounds of concealment without striking out the inapplicable limb.
Sections Cited
143(3), 69, 271(1)(c), 251, 274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the assessee against order of Commissioner of Income Tax (Appeal)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 29.08.2024 for AY 2011-12. 2. Brief facts of the case of the assessee are that the assessee filed its return of income for AY 2011-12 on 09.11.2011 declaring a total income of Rs. 2,00,784/-.
Assessment Year: 2011-12 Dey Trading Co. Subsequently, an assessment order was passed u/s 143(3) of the Act on 18.03.2014, at a total income of Rs. 39,17,800/-. While passing the assessment order the AO made an addition of Rs. 37,17,017/- towards undisclosed investment u/s 69 of the Act, Rs.17,79,415/- difference in cash balance treated as unexplained money for Rs. 1,04,403/-, concealed sales of ‘note pads’ for Rs. 1,00,000/-, outstanding liability appearing in the balance sheet for Rs. 8,99,080/- and on payment to parties without making TDS for Rs. 8,34,119/-. Thereafter penalty proceedings u/s 271(1)(c) was initiated for each addition.
Being aggrieved to the order u/s 143(3), the assessee filed an appeal before the Ld. CIT(A). Later as per the order of the Ld. CIT(A)-15, Kolkata dated 07.03.2018 the assessee got relief regarding the addition of Rs. 1,04,403/- towards cash difference and addition of Rs. 8,99,080/- towards the outstanding liability appearing in the balance sheet. Therefore, the concealed income of the assessee now reduced to Rs. 27,13,534/- (Rs. 37,17,017/- minus Rs. 10,03,438/-) vide order u/s 251/143(3) of the Act dated 31.05.2018. Penalty proceeding has been initiated against the assessee on account of concealment amount of income of Rs. 27,13,534/-.
The said order has been challenged by the assessee before the Ld. CIT(A) wherein the appeal of the assessee has been partly allowed by holding that the assessee has concealed the particulars of income to the extent of Rs. 1,50,000/-.
Being aggrieved and dissatisfied with the impugned order, the assessee preferred the present appeal.
The Ld. Counsel has challenged the very impugned order thereby submitting that notices issued u/s 274 read with Section 271(1)(c ) of the Act is invalid as addition has been made on estimation basis and as such there was no definite finding on the quantum of concealment of income. The Ld. Counsel submits that notices issued did not mention the amount of concealment rather it has only been mentioned that “you have concealed the particulars of your income……….” Furnished inaccurate particulars of income. The Ld. Counsel cited a decision passed by ITAT, Mumbai in Jatin Enterprises vs. ACIT, i) DCIT vs. Shyam Kundandas Gyanchandani, for AY 2009- 10, decided on 03.02.2023. ii) Fancy Diamond India Pvt. Ltd. vs. DCIT, to 963/Mum/2023, for AY 2010-11 to AY 2012-13, decided on 20.06.2023. iii) Sushila Goyal vs. ITO, for AY 2014-15 decided on 31.05.2023.
Contrary to that the ld. D.R supports the impugned order.
6. Upon hearing the submissions of the ld. Counsel of the respective parties, we find that there is no denying to this fact that the AO has initiated a penalty proceeding on account of concealment of income at Rs. 27,13,534/-. When the said order has been challenged by the assessee before the Ld. CIT(A), the Ld. CIT(A) has held that the assessee has concealed the particulars of income to the extent of Rs. 1,50,000/-. We have gone through the cited decision of the assessee and find that ITAT, Mumbai in case of Jatin Enterprises (supra) wherein the Co-ordinate Bench has held as under:
“5. The Hon'ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries reported as 360 ITR 580 has held that where addition is made purely on estimate basis, no penalty u/s. 271(l)(c) of the Act is leviable. Similar view has been expressed by the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. reported as 303 ITR 53. The Hon'ble High Court approving the order of Tribunal held that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty u/s. 271(l)(c) of the Act is not livable. The Hon'ble Gujarat High Court in the case of CIT vs. Subhash Trading Co. Ltd. reported as 221 ITR 110 has taken a similar view in respect of penalty levied u/s. 271(1)(c) of the Act on estimated additions. There are catena of decisions by different High Courts and various Benches of the Tribunal wherein penalty levied u/s. 271(l)(c) of the Act on estimated additions has been held to be unsustainable.
Thus, in the facts of the instant case and the decisions referred above, we hold penalty levied u/s. 271(1)(c) of the Act unsustainable. Ergo, the Assessing Officer is directed to delete the penalty.
Further, during the study of appeal file we find that the assessee has placed on record penalty notice u/s. 274 r.w.s 271 of the Act dated 25/03/2015. A perusal of the notice reveals that it is in a pre drafted Performa and mentions both limbs of section 271(1)(c) of the Act Assessment Year: 2011-12 Dey Trading Co. as, “have Concealed the particulars of your income or …….. Furnished inaccurate particulars of such income.” The Assessing Officer has not struck off irrelevant clauses in the notice. The Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh vs. DCIT, 125 taxmann.com 253 ( Bombay) held that where Assessing Officer clearly records satisfaction for imposing penalty on one or other or both grounds mentioned in section 271(1)(c) of the Act, non-striking of irrelevant matter would render the notice defective and such defective notice vitiate the penalty proceedings. In the present case, we find that in assessment order the Assessing Officer had initiated penalty proceedings for furnishing inaccurate particulars of income only. Since, both limbs i.e. “concealed particulars of income and furnished inaccurate particulars of income” are recorded in the notice, the notice is defective. The penalty levied u/s. 271(1)(c) is liable to be deleted on the ground of defective notice as well.”
7. The present case is squarely covered with the cited judicial pronouncement. Notices issued clearly revels that it is on estimation, there is no specific charge. Accordingly, the appeal of the assessee is hereby allowed and the impugned order of penalty is hereby set aside.
In the result, the appeal filed by the assessee is allowed.
Order is pronounced in the open court on 23rd January, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 23rd January, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- Dey Trading Co., 123, Feeder Road, Belghoria, Kolkata-700056 2. Respondent – ITO, Ward-49(3), Kolkata 3. Ld. CIT(A)-NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)