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Income Tax Appellate Tribunal, DELHI BENCHES: ‘A’, NEW DELHI
Before: SHRI G.D.AGRAWAL, HON’BLE & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal is preferred by the assessee against the order dated 21.11.2014 passed by the Ld. Commissioner of Income Tax (Appeals)-6, Rohtak for the Assessment Year (A.Y.) 2008-09, wherein vide the impugned order the Ld.CIT (A) has upheld the ITA 81/Del/2015 A.Y.:2008-09 Sh. Arvind Kumar vs. ITO imposition of penalty of Rs.1,38,642/- u/s 271(1)(c) of the Income Tax Act, 1961 (‘the Act’ for short).
The brief facts of the case are that the assessee is engaged in the business of execution of Civil Contracts. The return of income was filed declaring an income of Rs.1,19,000/-. Upon the case being selected for scrutiny, the assessee was required to produce books of accounts and supporting documents. However, the assessee failed to produce complete books of accounts and the supporting documents. The Assessing Officer (‘A.O.’) proceeded to reject the books of accounts and estimated the income from contract work at 8% of the gross receipts. Subsequently, penalty u/s 271(1)(c) of the Act was imposed on the difference of net profit as shown by the assessee and the rate of net profit as computed by the A.O. after rejecting the books of accounts. The assessee’s appeal before the Ld. CIT (A) was also dismissed. Now the assessee has approached the ITAT and has challenged the confirmation of penalty.
The Ld. A.R. submitted that the penalty was imposed on addition which was made on estimate. It was further submitted that it is settled law that when trading additions have been made on estimate basis, no penalty could be imposed for either
ITA 81/Del/2015 A.Y.:2008-09 Sh. Arvind Kumar vs. ITO concealment of income of for furnishing inaccurate particulars of income. Reliance was placed on a number of judicial precedents in support of the contention that no penalty was imposable on additions based on estimate.
In response the Ld. Sr. D.R. highlighted the fact that the addition had to be made because the assessee had not produced the books of accounts even though numerous opportunities were given to the assessee as mentioned in the assessment order. It was submitted that the assessee cannot take shelter behind legal precedents to escape the rigors of penalty when the assessee himself was at default. The Ld. Sr. D.R. also placed reliance on the judgement of Hon’ble Madras High Court in the case of CIT vs. Balasubramaniam and Bros reported in 152 ITR 529 (Mad.), wherein the Hon’ble Madras High Court had upheld the imposition of penalty which was based on estimated additions.
We have heard the rival submissions and have also perused the material placed on record. In the present case it is not in dispute that the addition was based on an estimate. It is also not in dispute that the assessee had failed to produce the books of accounts along with the supporting documents even though he was specifically required by the A.O. to do so. The Ld. Sr. D.R. Page 3 of 6
ITA 81/Del/2015 A.Y.:2008-09 Sh. Arvind Kumar vs. ITO has placed reliance on the judgement of Hon’ble Madras High Court in the case of CIT vs. Balasubramaniam and Bros. (supra) but we find that this case is distinguishable on facts as in that case the assessee had failed to disclose the sales of import licences and an estimate had to be made regarding suppressed sales. Here, in the present appeal, addition was in respect of profit estimation. The Ld. A.R. has also relied on a number of judicial precedents wherein it has been held that penalty cannot be imposed on additions which were based on estimates only. We do deplore the conduct of the assessee in not producing the books of accounts and documents before the A.O. in spite of numerous opportunities being given. However, we are of the considered opinion that penalty u/s 271(1)(c) of the Act is not imposable in each and every case where the quantum stands confirmed. We have perused the orders of the authorities below and there is nothing to show that the assessee has concealed its income or furnished inaccurate particulars of income. There can be several reasons for variation in the Net Profit Ratio and it is undisputed that the books of the assessee were duly audited. Further, the mere fact that the addition has been accepted or is confirmed in quantum proceedings cannot be a conclusive
ITA 81/Del/2015 A.Y.:2008-09 Sh. Arvind Kumar vs. ITO finding for imposition of penalty. The Hon’ble Calcutta High Court in case of Durga Kamal Rice Mills vs. CIT reported in (2004) 265 ITR 25 (Cal.) has held that quantum proceedings are different from penal proceedings. The Hon’ble Kerala High Court in CIT Vs. P.K. Narayanan reported in (1999) 238 ITR 905 (Ker.) has held that despite the addition being confirmed by Tribunal in the quantum proceedings, the penalty can still be deleted by the Tribunal, if the facts justify. In the instant case, the addition has been made only on the basis of estimate made by the A.O. It is settled legal position that when income is estimated, then there can be no question of imposing penalty u/s 271(1)(c) of the Act. The Hon’ble Delhi High Court in CIT Vs. Aero Traders Pvt. Ltd. reported in (2010) 322 ITR 316 (Del.) has held that no penalty u/s 271(1)(c) can be imposed when income is determined on estimate basis. A similar view has been taken by the Hon’ble Punjab and Haryana High Court in Harigopal Singh vs. CIT reported in (2002) 258 ITR 85 (P&H) and the Hon’ble Gujarat High Court in CIT Vs. Subhash Trading Co. reported in 221 ITR 110 (Guj.). It is apparent that the bedrock of instant penalty is the estimate of profit and the same cannot be sustained. The penalty is, thus, ordered to be deleted.
ITA 81/Del/2015 A.Y.:2008-09 Sh. Arvind Kumar vs. ITO
In the result appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 28th June, 2018.