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Income Tax Appellate Tribunal, DELHI BENCHES : SMC-II : NEW DELHI
Before: SHRI R.S. SYAL
per CBM. Since proper stock register was not maintained, the AO rejected the books of account by invoking the provisions of section 145(3) of the Act. He applied GP rate of 4.9% and made an addition of Rs.35,40,410/-. No relief was allowed in the first appeal in quantum proceedings. Thereafter, the AO imposed penalty u/s 271(1)(c) of the Act on the income estimated by him. Such penalty was determined at Rs.10,62,120/-. The ld. CIT(A) upheld the penalty by holding that the books of account were not properly maintained and the income was rightly estimated.
I have heard the rival submissions and perused the relevant material on record. It is observed that the AO has simply rejected the books of account and made an estimate of profit rate of 4.9% to work out an addition of Rs.35.40 lac on which the instant penalty has been imposed. The tribunal, vide its order dated January, 2015, reduced the rate of profit from 4.90% to 3.53%. Apart from this estimate made by the AO, there is nothing to show that the assessee suppressed the income in any manner. This divulges that the addition has been made only on the basis of estimate made by the AO, which again stood reduced by the tribunal. It is a 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., (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. Similar view has been taken by the Hon’ble P&H High Court in Harigopal Singh vs. CIT (2002) 258 ITR 85 (P&H) and the Hon’ble Gujarat High Court in CIT vs. Subhash Trading Company, 221 ITR 110 (Guj). In view of the foregoing precedents including the one from the Hon’ble jurisdictional High Court, it is apparent that when the bedrock of instant penalty is the estimate of income, the same cannot be sustained. Overturning the 3 impugned order, I order for the deletion of penalty amounting to Rs.10,62,120/-.
In the result, the appeal is allowed.
The order pronounced in the open court on 16.06.2016.