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Facts
The assessee, a civil contractor, filed his return declaring income. The case was selected for scrutiny, and due to non-compliance, assessment was completed under Section 144, with additions made based on a 12% net profit rate. Penalty proceedings under Section 271(1)(c) were initiated. The CIT(A) had partly allowed the appeal by reducing the penalty from 200% to 100% of the tax sought to be evaded.
Held
The Tribunal held that penalty cannot be imposed when the income was assessed on an estimated basis. The core contention was that the penalty was based on estimated additions, which were progressively reduced by the appellate authorities. Relying on precedent, the Tribunal stated that if income is assessed based on estimated profit, penalty is not leviable.
Key Issues
Whether penalty under Section 271(1)(c) can be imposed when income is assessed on an estimated basis and subsequent additions have been substantially reduced.
Sections Cited
271(1)(c), 144, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SMT. ANNAPURNA GUPTA & SHRI SUNIL KUMAR SINGH
ORDER Per Sunil Kumar Singh, Judicial Member:
This appeal has been preferred by assessee against the impugned order dated 13.04.2022 passed in Appeal no. CIT(A)-AGRA-1/10058/2020- 21 by the Ld. Commissioner of Income– tax(Appeals)/National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “CIT(A)”] u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as "Act"] for the Assessment Year [A.Y.] 2012-13, wherein learned CIT(A) partly allowed assessee’s appeal by reducing the imposition of penalty from 200% to 100% of the tax sought to be evaded.
Brief facts of the appeal state that the assessee is a civil contractor engaged in the work of construction and e-filed his return of income on 10.04.2013 declaring total income of Rs.43,58,630/-. Case was selected for scrutiny under CASS. Assessee remained non-compliant for various statutory notices issued by the Assessing Officer. Hence, assessment was completed u/s. 144 of the Act and addition of Rs.2,84,61,888/- was made to the income of the assessee by applying net profit rate at 12% and aforesaid penalty proceedings were also initiated u/s. 271(1)(c) of the Act on the ground that assessee has furnished inaccurate particulars of income.
In appeal against the assessment order dated 18.03.2015, first appellate authority reduced the addition of NP rate @ 8% of total turnover.
Further, this Tribunal vide order dated 04.09.2019 passed in reduced the NP rate @ 6%.
Assessee in appeal against the present penalty order dated 18.03.2020 approached with a prayer that the penalty order cannot stand on estimation basis. However, ld. CIT(Appeals) was not fully satisfied and partly allowed relief by restricting penalty from 200% to 100% of the tax sought to be evaded. Assessee has filed this appeal mainly on the ground that before passing penalty order, notice was not issued in conformity with the law laid down by Hon’ble Supreme Court and that no penalty can be imposed on the 2 | P a g e basis of assessing assessee’s income merely on estimation by application of net profit rate. Reliance is placed on several decisions.
Perused the records and heard learned representatives for both the parties.
The core contention of learned representative for assessee is that the imposition of the impugned penalty is based on the addition made by Assessing Officer merely on estimation. It was further submitted that in quantum proceedings while making addition, the Assessing Officer estimated net profit rate at 12%, which got reduced to 8% by first appellate authority and to 6% by Tribunal. This fact is not disputed by the Revenue. Therefore, in view of the order of coordinate Bench of this Tribunal in Naresh Katare Contractor vs. ACIT (2017) 51 CCH 316(Agra-Trib) relied upon by ld. counsel for assessee, no penalty can be imposed against the assessee based on estimated addition. Relevant finding of Tribunal recorded in para 9 of the order are as under :
It is undisputed fact that the assessee’s taxable income was assessed on estimated basis. In quantum appeal, before us, the net profit rate is reduced to 3% as against 6% estimated by ld. CIT(A) and 12.5% estimated by the AO, of the gross total receipt as above. The ld. AR contended that it is a case of an estimate against an estimate. As such, there was no concealment of income and accordingly no penalty is imposable as held in the case of ‘CIT vs. Raj Ban Singh’, (2005) 276 ITR 351(All). The Hon’ble Delhi High Court in the case of ‘CIT vs. Aero Traders Pvt. Ltd.’, (2010) 322 ITR 316(Del); and ‘(2010) 231 CTR 524’, and in many decisions of ITAT, Agra Bench, Agra, (Supra), it was held that penalty is not leviable when income was assessed based on estimated profit and substantially reduced 3 | P a g e
by the Tribunal. In the present case, the assessment was based on estimated profit @ 12.5 % which is substantially reduced by the ld. CIT (A) by estimating @ 6 % and further reduced by the Tribunal @ 3% in quantum appeal. The cases referred by the Ld DR are distinguishable on their own peculiar facts.”
There being parity of facts involved in the present appeal, we do not find any justification for imposition of impugned penalty against the assessee u/s. 271(1)(c) of the Act when the income of the assessee has been assessed on the basis of estimated profit. Hence, the impugned order dated 13.04.2022 deserves to be set aside.
In the result, appeal is allowed.
Order pronounced in the open court on 29.04.2025.