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Income Tax Appellate Tribunal, ‘A’ BENCH
Before: Shri M.Balaganesh & Shri S.S.Viswanethra Ravi
This appeal by the revenue is directed against the order dated 07/11/2013 passed by the Commissioner of Income Tax(Appeals),XIX, Kolkata for the assessment year 2006-07, wherein he cancelled the penalty as imposed by the AO u/s. 271(1) ( c) of the I.T Act, 1961.
The only issue is to be decided in this appeal as to whether the CIT- A is justified in cancelling the penalty of Rs.37,16,640/- imposed by the AO u/s. 271(1) ( c) of the Act in the facts and circumstances of the case.
The assessee is a firm engaged in the business of construction. The assessee filed its return for the a.y under consideration declaring total income at Rs.8,51,650/-. The AO determined the total income at M/s. Deepak Construction Co. 1 Rs.1,64,00,350/- u/s. 143(3) of the Act by an order dated 22.12.2008 making additions/disallowances. Later on the case was reopened u/s. 147 and further disallowances u/s. 40(a)(ia) was made in addition to disallowances made in the original assessment u/s. 143(3) and accordingly the penalty u/s. 271(1)( c) of the Act was also initiated. In appeal against such assessment order the CIT-A deleted the additions made under the head ‘Mandatory Liabilities’ of Rs.18,60,229 and confirmed the additions made under the head ‘Other liabilities’ to the extent of Rs.37,16,640/- ( 50% of Rs.74,33,280/- on estimate basis. Penalty proceeding was initiated consequent to the assessment order passed u/s.143(3)/251 of the Act and penalty @ 100% of Rs.12,51,022/- was imposed for concealment of particulars of income and for furnishing inaccurate particulars of income of Rs.37,16,640/- being outstanding liability.
Against which the assessee preferred an appeal before the CIT-A. The CIT-A found the AO made additions on estimation and the same were confirmed by the CIT-A in an appeal preferred against the assessment order. The CIT-A in penalty proceedings cancelled the impugned penalty of Rs.12,51,022/- as imposed by the AO by observing that the penalty is not maintainable on additions made on estimation by observing as under:-
5. The penalty order of the AO and the appellant's submissions have been carefully considered in deciding the issue at hand. Going by the statutory provisions of the act and the plethora of various court judgments in this regard, penalty u/s 271(1)(c) of the Act cannot be imposed on estimated additions made by the AO. The contention of the appellant in this regard carries much weight backed by various court verdicts with regard to imposition of penalty as aforesaid. In order to apply the provisions of the penal section of 271 (1)( c) of the Act, there has to be concealment of particulars of income and secondly the assessee must have furnished inaccurate particulars of income. In the instant case, these two conditions are found missing. Additions made by the AO and a part of it confirmed by the CIT(A) are all based on estimates where nothing has been brought on record prove that the appellant had concealed its income or furnished inaccurate particulars. In a similar case of Shri Narayansingh J. Deora vs. ACIT, Circle-R, Thane in dated 09.12.2011, the ITAT of Mumbai Bench - 'B' held that "It is settled law that the penalty is not leviable on estimate of income. Having considered the issue in its entirety, I do not find any merit in the imposition of penalty by the AO as M/s. Deepak Construction Co. 2
mentioned (supra) and hence the penalty imposed amounting to Rs.12,51,022/- on account of the estimated additions made is hereby deleted.”
Aggrieved by such order of the CIT-A, now the revenue is in appeal before us by raising the aforementioned solitary ground of appeal.
6. Before us the ld. DR submits that the assessee did not file appeal before the Tribunal to the extent as upheld by the CIT-A of Rs.36,17,640/- under the head outstanding liabilities being 50% of Rs.74,33,280/- and relied on the order of the AO.
The ld.AR submits that no specific charge was made by the AO and penalty as imposed by the AO u/s. 271(1)(c) of the Act and further argued that the penalty imposed on an addition made on estimation is not maintainable under the present facts and circumstances of the case and relied on the order of CIT-A.
During the course of arguments the ld. AR for the assessee further submitted that the case under consideration is covered by the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), and also by the order of the Tribunal in the case of Suvaprasanna Bhattacharya Vs. ACIT, Cir-55, Kolkata in dated 06-11-2015 which considered decision of the Hon’ble Karnataka High Court supra and passed detailed order the said issue. On the contrary, the Ld. DR has relied on the orders of the lower authorities.
Heard the rival submissions and perused the material available on record. The question before us is as to whether the penalty order passed by the AO and confirmed by the CIT(A) is falls for our consideration in pursuance of the law laid down by the Hon’ble Karnataka High Court M/s. Deepak Construction Co. 3 supra. The Hon’ble Karnataka High Court in the case of CIT & Anr. vs Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of income or for furnishing inaccurate particulars of income and in support of the same the Ld.AR did not bring on record any notice showing the same as defective notice as held by the Hon’ble High Court of Karnataka supra and is not applicable in respect of non-submission of any evidence in that regard charging of penalty under both the charges.
But, however, with regard to the submissions that the penalty cannot be imposed on income based on estimation, the Ld. AR referred to the para-5 of impugned order and in this regard, we may examine the decision in the case of Sangrur Vanaspati Mills Ltd of Hon’ble High Court of Punjab & Haryana reported in 303 ITR 53 (P&H). The facts therein, the addition had been made by the AO by estimating the sales outside the books of account. The CIT(A) estimated the yield and worked out the additional production, on this estimated additional production and applied average sale rate and worked out the additional sale at Rs. 15,50,306 which was rounded off to Rs. 15,50,000 and added to the income of the assessee. The Tribunal also estimated the yield on the basis of preceding year and the addition made by the learned CIT(A) had been sustained. The Hon’ble High Court held that there should be conclusive evidence that the assessee had concealed the particulars of income or furnished inaccurate particulars of income for levying the penalty and the relevant portion of which is reproduced herein below:
We have heard counsel for the appellant and have gone through the impugned order.
The order passed by the Tribunal is based upon two decisions of this Court in CIT vs. Ravail Singh & Co. (2002) 173 CTR (P&H) 429 : (2002) 254 ITR 191 (P&H) and Harigopal Singh vs. CIT (2002) 177 CTR (P&H) 580 : (2002) 258 ITR 85 (P&H). In both these decisions, this Court has held that in order to attract cl. (c) of s. 271(1) of the Act, it is necessary that there must be concealment by the assessee of the particulars of his income or furnishing of inaccurate particulars of such income. The provisions of s. 271(1)(c) of the Act are not M/s. Deepak Construction Co. 4 attracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein. It was held that when the addition had been made on the basis of estimate and not on account of any concrete evidence of concealment, then the penalty was not leviable. The similar view was also taken by this Court in CIT vs. Dhillon Rice Mills (2002) 256 ITR 447 (P&H), where the addition was made by the AO by estimating the yield of super phak as well as of chhilka and also the price of chhilka, that addition was reduced by the CIT(A). However, the penalty levied by the AO was deleted by the CIT(A). The order of CIT(A) was confirmed by the Tribunal and the appeal filed by the Revenue against the said order of the Tribunal was dismissed by this Court, on the ground that the AO had made the additions on the basis of estimate of the yield of phak and chhilka and an estimate of the price and that the estimate would not ipso facto lead to penalty.
7. In view of the aforesaid factual and legal position, we are of the opinion that no substantial question of law is arising from the order passed by the Tribunal. Dismissed
In the present case, as discussed above the AO made the impugned addition on purely on the basis of estimation which can be elicited from the page no-3 for not substantiating the claim of expenditure of Rs.74,33,280/- and the CIT-A in appeal preferred against assessment order upheld to the extent of 50% of Rs.74,33,280/- which suggests that the CIT-A held the same on estimation. We find the CIT-A in penalty proceedings rightly cancelled the same by observing that the penalty is not maintainable on the additions made on the basis of estimation, therefore, the disallowance as determined by the AO and CIT-A under the head bogus outstanding liability was made on the basis of estimation on which the AO imposed penalty. Therefore, it is clear from the addition was made on the basis of estimation. The Honourable High Court in the decision supra held the findings of the Tribunal in sustaining the penalties imposed on the basis of estimation is bad. We are of the opinion the facts and circumstances in the decisions supra are similar to the facts of the case in hand and therefore, the principle laid down by the Honourable High Court supra is applicable to the case on hand. Respectably following the law laid down above, the order of the CIT-A is justified and we cancel the penalty of Rs. 12,51,022/- imposed by the AO. Thus, the ground as discussed above raised by the assessee is allowed. M/s. Deepak Construction Co. 5
In the result, the appeal of revenue is dismissed.
ORDER PRONOUNCED IN OPEN COURT ON 03-02-2017 Sd/- Sd/- M.Balaganesh S.S. Viswanethra Ravi Accountant Member Judicial Member Dated 03/02/2017 Copy of the order forwarded to: 1. The Appellant/department: ACIT, Cir-40 18 Rabindra Sarani, Poddar Court, 4th Floor, Kolkata-700 001. 2 The Respondent/assessee: M/s. Deepak Construction Co. 35D, Bagmari Road, Kolkata-700 054. 3 /The CIT(A) 4.The CIT DR, Kolkata Bench 5.