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Facts
The assessee company, engaged in real estate development, had its income assessed with a disallowance of sub-contract payments. This disallowance was restricted by the CIT(A) and confirmed by the ITAT. Subsequently, a penalty was levied under section 271(1)(c) for concealment of income.
Held
The Tribunal held that when the addition to income is based on estimation, a penalty under Section 271(1)(c) cannot be levied. The penalty levied by the lower authorities was directed to be deleted.
Key Issues
Whether penalty under Section 271(1)(c) can be levied when the addition to income is based on estimation rather than concealment of income.
Sections Cited
271(1)(c), 143(3), 275, 145
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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Smt. Annapurna Gupta & Shri T.R. Senthil Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Smt. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member Assessment Year. 2013-14 Maruti Infrastructure Ltd. The DCIT, 802, Surmound, Circle-2(1)(1), Ahmedabad OPP. ISCON Temple, Vs S.G. Highway, Ahmedabad-380054 Gujarat PAN No. AAACM7976L (Appellant) (Respondent) Assessee Represented: Shri Parin Shah, A.R. Revenue Represented: Shri Amit Pratap Singh, Sr. D.R Date of hearing : 07-01-2025 Date of pronouncement : 03-03-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the exparte appellate order dated 07.08.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), confirming the penalty levied under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2013-14. Page No 2 Maruti Infrastructure Ltd. Vs. DCIT
Brief facts of the case is that the assessee is a Limited Company engaged in Real Estate Development, Builder and Civil Contractor. For the Asst. Year 2013-14, assessee filed its Return of Income on 21-09-2013 declaring total income of Rs.39,46,540/-. Regular assessment u/s. 143(3) was made disallowing sub contract payments made to M/s. Limestone Properties Pvt. Ltd. as non- genuine and 40% of the same namely Rs.2,63,44,508/- was treated as bogus expenses by rejecting the books of accounts. On appeal against the assessment order, Ld. CIT(A) restricted the disallowance and estimated to 7% of the profit instead of 40% disallowed by the A.O.
On further appeal, ITAT confirmed the order of Ld. CIT(A) by dismissing both Assessee and Revenue appeals. Thereafter the A.O. initiated penalty proceedings and imposed Rs.4,07,772/- u/s. 271(1)(c) for concealment of income.
Aggrieved against the penalty order, assessee filed an appeal before Ld. CIT(A), wherein he has given only one opportunity of hearing dismissed the appeal filed by the assessee confirming the levy of penalty.
Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
1. The order passed by lower authorities is bad in law and required to be quashed.
2. Ld. NFAC erred in law and on facts in dismissing appeal ex-parte ignoring fact that only one notice was issued and thus violated the principle of natural justice.
Page No 3 Maruti Infrastructure Ltd. Vs. DCIT 3 Ld. NFAC erred in law ad on facts in confirming penalty of Rs. 4,07,772/- u/s 271(1)(c) of the Act. 4 Ld. NFAC ought to have considered the fact that all authorities has estimated income and accordingly, this is not a fit case for levy of penalty. 5 The order passed by AO confirmed by NFAC is required to be quashed as same has been without proper satisfaction. 6 The order passed by lower authorities is barred by limitation as per section 275 of the Act and accordingly required to be quashed.
Ld. Counsel appearing for the assessee in support of its Grounds of Appeal submitted that the Assessing Officer only estimated income at 40% on the sub contract payments made to M/s. Limestone Properties Pvt. Ltd. as non-genuine. Whereas the Ld. CIT(A) restricted the disallowance at 7% which was confirmed by ITAT. The following case laws makes it very clear that penalty u/s. 271(1)(c) cannot be levied against the estimation of income, therefore the penalty levied by the lower authorities liable to be deleted.
Sr. Case Law Citation Judicial Forum No. 1 Subhash Trading Co. 221 ITR110 Gujarat 2 Navjivan Oil Mills 252ITR417 Gujarat 3 Valmikbhai H Patel 280 ITR 487 Gujarat 4 Bombaywala Readymade 55 taxmann.com Gujarat Stores 258 5 Hariyana Textile 741 of 2009 Gujarat Industries Pvt. Ltd. 6 I - serve Systems Pvt. Ltd. 1044/Ahd/2018 Ahmedabad 7 Anil Abhubhai Odedara 117 taxmann.com Rajkot 490 8 Thakorbhai & Company 641/SRT/2023 Surat Page No 4 Maruti Infrastructure Ltd. Vs. DCIT
Per contra, Ld. Sr. D.R. appearing for the Revenue supported the order passed by the lower authorities and requested to uphold the levy of penalty.
We have given our thoughtful consideration and perused the materials available on record. The Co-ordinate Bench of this Tribunal in the quantum appeal confirmed the estimation of profit at 7% on the total turnover, since the A.O. has not provided any material for estimation of the profit at 40%. Thus the addition confirmed by the Tribunal is estimation of income only, in the above circumstances whether Penalty u/s. 271(1)(c) can be levied or not is the moot question that is under consideration.
8.1. The Jurisdictional High Court in the case of ITO vs. Bombaywala Readymade Stores reported in [2015] 55 taxmann.com 258 wherein it was held as follows:
“Section 271(1)(c), read with section 145, of the Income-tax Act, 1961 Penalty For concealment of income (Estimation of income) - During search excess stock was found on physical verification as against book stock worked out as on date of search - Assessee did not file return of income for relevant year in which search had been conducted - Assessing Officer completed assessment for relevant assessment year on basis of materials available with him - Penalty proceedings were initiated for concealing particulars of income - Whether since no income had been filed by assessee and income was assessed on estimate basis by revenue, no penalty under section 271(1)(c) could be levied for concealment of income Held, yes [Para 6] [In favour of assessee]” 8.2. The Co-ordinate Bench of Surat decision in the case of Thakorbhai & Company Vs. ITO (In order dated 06/11/2023 wherein it was held as follow: “5. I have considered the rival submissions of both the parties and perused the record carefully. I find that the Assessing Officer while Page No 5 Maruti Infrastructure Ltd. Vs. DCIT passing the assessment order, noted that the has shown purchases in cash aggregating to Rs.77,03,224/-. The Assessing Officer after giving show cause notice, disallowed 50% of such purchases. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) restricted the addition to the extent of 5%, however, 5% was applied on total turnover. On receipt of order of Id. CIT(A) in quantum assessment, the Assessing Officer levied penalty of Rs. 2,11,310/-. I find that the addition was certainly bases on estimation made by the Assessing Officer and modified by the Id. CIT(A). I find that the Hon'ble Jurisdictional High Court in the case of ITO Vs Bombaywala Readymade Stores (supra) held that "whether since no income had been filed by assessee and income was assessed on estimate basis by revenue, no penalty under Section 271(1)(c) could be levied for concealment of income." In view of the aforesaid factual and legal position, I find that no penalty is leviable on the assessee, when the addition on account of impugned purchases was estimated merely on the basis of estimation, therefore, I direct to delete the penalty levied under Section 271(1)(c) of the Act. In the result, ground of appeal raised by the assessee is allowed.
6. In the result, the appeal of assessee is allowed.”
9. Thus the addition made by the A.O. was based on estimation at 40% of the turnover which was modified by the Appellate Authority to 7% in the present case. Therefore no question of levying Penalty u/s. 271(1)(c) of the Act and the same is liable to be deleted, and we direct so to delete the same.
In the result, the appeal filed by the Assessee is allowed.