JANAKKUMAR MUKUNDPRASAD PATEL,SURAT vs. INCOME TAX OFFICER WARD 1 BARDOLI, SURAT

raised by the assessee are as follows: “1.On the facts and circumstances of the case as well as law on the subject, the learned assessing officer has erred in levying penalty u/s 271(1)(c) when assessing office had not specified in the notice u/s 274 r.w.s. 271(1)(c) whether the penalty was leviable for concealment of particulars income or for furnishing inaccurate particulars thereof.

The facts of the case may be briefly stated. The assessee before us is an individual and engaged in agriculture activities. During the course of assessment proceedings, notice u/s 142(1) of the Act was issued on 05.09.2016, which was duly served upon the assessee. In response to this notice, the assessee submitted requisite details. During the course of assessment proceedings, it was noticed by the assessing officer that the assessee has deposited cash of Rs.51,54,000/- in the saving bank account of State Bank of India during the year under consideration. In this regard the assessee had stated that he was earning agricultural income from last many years and he has deposited the said cash from earning from the agricultural activities. On perusal of bank account and cash-in-hand of the assessee, it was noted by the assessing officer that arguments made by the assessee were not true and arguments of the assessee were not fully acceptable because source of cash deposits in the saving bank account of the assessee was not of agricultural earning from the past years. Therefore, addition of Rs.10,00,000/-, out of Rs. Rs.51,54,000/-, was made by the assessing officer on estimated basis, treating the income as the unexplained sources. Hence penalty proceedings u/s 271(1)(c) r.w.s. 274 of the Act was also initiated on this estimated addition.

Later on, the Assessing Officer has also initiated penalty proceedings u/s 271(1)(c) of the Act, on the above addition. Therefore, a show cause notice u/s 274 r.w.s. 271(1)(c) of the Act, was issued on 17.12.2016 and sent along with the assessment order for giving an opportunity of hearing. Further, during the penalty proceedings, the assessing officer noted that the assessee has not preferred appeal against

Aggrieved by the order of NFAC/Ld. CIT(A), the assessee is in further appeal before this Tribunal.

At the outset, Learned Counsel for the assessee, argued that during assessment proceedings, the Assessing Officer made the addition based on estimation, to the tune of Rs.10 lakh and initiated penalty proceedings on estimated addition of Rs.10 lakh u/s 271(1)(c) of the Act. The Ld. Counsel also submitted that since the penalty was initiated on estimated addition and therefore penalty on estimated addition is bad-in-law and for that Ld. Counsel has invited my attention to the judgment of this co-ordinate Bench of ITAT-Surat, in the case of Gipilon Texturising Pvt. Ltd. Vs. ITO in & 294/SRT/2013 dated 13.04.202.

The Ld. Counsel further submitted that Assessing Officer initiated penalty on account of concealment of income and furnishing inaccurate particulars of income i.e., on both the limbs. During the penalty proceedings, the Assessing Officer has issued notice u/s 271(1)(c) of the ITA.418/SRT/2023 AY.14-15 Janakkumar M Patel Act, wherein both the limbs have been stated, that is, ‘concealment of income’ or ‘furnishing inaccurate particulars of income’. Therefore Ld. Counsel contended that without invoking Explanation-1 of Section 271(1)(c) of the Act, the penalty should not have been levied on both the limbs. For that, Ld. Counsel relied on the judgment of Hon’ble Supreme Corut in the case of CIT vs. M/s SSA’S Emerald Meadows in SLP CCNo.11485/2016 dated 05.08.2016 and also relied on the judgment of Hon’ble Bombay High Court in the case of Ganga Iron & Steel Trading Co. vs. CIT [2022] 135 taxmann.com 244 (Bom).

On the other hand, Learned Sr.DR for the Revenue supported the penalty order passed by the Assessing Officer and argued that penalty was initiated by the Assessing Officer on two limbs, viz: “concealment of income” or “furnishing inaccurate particulars of income”. The penalty notice issued during the penalty proceedings, was also on account of “concealment of income” or “furnishing inaccurate particulars of income”. Therefore, penalty can be imposed on both the limbs, hence there is no any mistake in the initiation of penalty proceedings.

The Ld.DR for the Revenue also argued that Assessing Officer has initiated penalty on estimated addition, which is also sustainable in the eyes of law.

After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. Counsel for the assessee, I find that the issue involved in the present appeal is no longer res integra. The question as to whether the penalty u/s 271(1)(c) of the Act, on estimated addition is sustainable or not, was considered by various judicial forums across India. I find that Co-ordinate Bench of ITA.418/SRT/2023 AY.14-15 Janakkumar M Patel ITAT-Surat, in the case of Gipilon Texturising Pvt. Ltd. Vs. ITO in & 294/SRT/2013, order dated 13.04.2021, held that penalty on estimated addition is not sustainable in the eye of law. The detailed findings of the Coordinate Bench are reproduced below: “7. At the outset of hearing, the Ld. AR of the assessee submits that though the assessee has raised two separate sets of appeal for both the assessment years i.e. 1988-89 and 1989-90. The Ld. AR for the assessee further submits that in case his points of submissions are accepted in ITA’s No.293 & 294/Ahd/2005, the appeals in ITA’s No.2141/Ahd/2013 & 2142/Ahd/2013 will become infructuous. 8.On merit, the Ld.AR of the assessee submits that the Assessing Officer (AO) while passing the assessment order rejected the books of accounts of assessee and estimated the Gross Profit (GP) @ 10% of turnover. On appeal before the ld. CIT(A), the addition was upheld. However, on further appeal before the Tribunal the addition was restricted to GP @ 5% of Gross Profit for both the assessment years vide order dated 08.03.2004 in ITA(s) No.186 & 187/Ahd/1998. The copy of order of the Tribunal is placed on record. In the aforesaid background, the Ld. AR for the assessee submits that it is settled law that no penalty is leviable on addition made on estimated basis. To buttress of his submission, the Ld.AR of the assessee relied upon the following decisions;  Manish Dhirajlal Mehta Vs ACIT in Tax Appeal No.461 & 464 of 2000 and 833 & 836 of 2005 dated 05.02.2014 (Gujarat High Court);  Vijay Proteins Ltd., Vs CIT (Income Tax Reference No.139 of 1996), (Gujarat High Court);  Awadhesh Bansiraj Pandey Vs ITO (ITA No.4784/ Mum/2018) Mumbai Tribunal and  DCIT Vs Anil J Kothari (2048/Ahd/2010), Surat Tribunal. 9.On the other hand, the Ld. Sr.DR for the Revenue submits that he strongly relied on the order of Assessing Officer (AO) and Ld. CIT(A). In alternative submissions the ld. SR DR for the revenue submits that the assessing officer rejected the books of accounts of the assessee and made fair addition @ 10% of GP, though, it was restricted by Tribunal to 5% of GP, thus, the assessee is liable to saddle with the penalty on such additions and the matter may be restore to the assessing officer for passing order afresh. 10.We have considered the rival submission of both the parties and have gone through the order of Lower Authorities. We have also deliberated on various case laws relied by the ld. AR for the assessee. We have also perused the contents of the order of Tribunal in quantum assessment appeals in ITA No(s). 186 & 187/Ahd/1998 dated 08.03.2004, the order of Tribunal dated 01.04.2005 and the order passed by Hon’ble Apex Court dated 04.09.2012 in Civil Appeal No. 577 of 2007. 11.We have noted that the assessee while filing return of income for assessment year 1988-89 on 20.06.1988 declared loss in the form unabsorbed depreciation

I note that assessee has deposited cash to the tune of Rs.51.56 lakhs in his Saving Bank account, out of its earning from agricultural source. However, the Assessing Officer has partly accepted, (out of Rs.51.56 lakhs) Rs.10 lakh as addition on estimated basis. The Ld. Counsel also took me through paper book page no. 1 and stated that Assessing Officer made estimated addition of Rs.10 lakh, whereas in the penalty order, Assessing Officer levied the penalty only on Rs.5,45,000/- vide para no.6 of penalty order. Therefore Ld. Counsel argued that the Assessing Officer made addition, on estimated basis, to the tune of Rs.10 lakh, however, in the penalty order dated 02.06.2017, the said amount was further estimated to the tune of Rs.5,45,000/-. Therefore, Assessing Office has further estimated the income of assessee during the penalty proceedings, and hence Ld. Counsel contended that the penalty on estimation should not be ITA.418/SRT/2023 AY.14-15 Janakkumar M Patel imposed. Hence, it is abundantly clear that penalty u/s 271(1)(c) of the Act, was imposed on estimated addition. Therefore, respectfully following the binding judgment of Co-ordinate Bench of Surat, Tribunal, in the case of Gipilon Texturising Pvt. Ltd. (supra), I delete the penalty imposed by Assessing Officer u/s 271(1)(c) of the Act. Hence, assessee’s appeal is allowed.

Since, I have deleted the penalty u/s 271(1)(c) of the Act, based on the plea of ld Counsel that penalty on estimated addition is not sustainable. Therefore, other arguments advanced by ld Counsel are rendered academic and infructuous and hence do not require adjudication.

In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 30/10/2023.