SHRI VITHALBHAI KADVABHAI KORAT,SURAT vs. INCOME TAX OFFICER, WARD - 3(3)(1), SURAT

Brief facts of the case are that assessee is an individual and earned income from share of profit from his partnership firm and also engaged in agricultural activities. The assessee filed his return of income for assessment year 2016-17 declaring income at Rs.14,70,290/- and shown agricultural income at Rs.16,30,530/-. The case was selected for scrutiny. The Assessing Officer during the assessment noted that assessee was showing agricultural income for so many years and during the year under consideration, the assessee has shown cultivated area of 70 Bighas (Approx.) of land. There is no change in the area of land with previous year. In the earlier year, the assessee shown average income per Bighas at Rs.14,637/- and in this year, has shown income of Rs.23,247/- per bigha. The Assessing Officer was of the view that agricultural income shown during this year is on higher side and Assessing Officer on the basis of two year’s average agricultural income worked out the average agricultural income per bigha at Rs.18,942/- and made addition of Rs.1,57,600/-. The Assessing Officer further noted that 2 (A.Y 16-17) Vithalbhai K Korat assessee has utilized interest bearing fund for investment of non-business asset like purchase of immovable property. The assessee has paid interest of Rs.3,31,118/- which was obtained through interest bearing fund and used for non- business purposes. The Assessing Officer made addition by taking view that assessee offered the said amount of Rs.3,31,118/- for taxation. The assessing officer initiated penalty on both the additions.

The Assessing Officer before passing the penalty order issued show cause notice to assessee and in response to show cause notice, assessee filed his reply dated 05.03.2019. In the reply, assessee submitted that he has furnished complete details of agricultural income and expenses and assessee voluntarily agreed and offered Rs.1,57,600/- to buy peace. Similarly, for the addition on account of interest bearing fund, the assessee stated that he voluntarily offered such income and no penalty is leviable. The explanation furnished by the assessee was not accepted by Assessing Officer and he levied the penalty @ 100% sought to be evaded, on both the additions. The Assessing Officer levied the penalty of Rs.1,51,020/-.

I have heard the submission of Ld. Authorized Representative (Ld. AR) for the assessee and learned Senior Departmental Representative (ld. Sr DR) for the Revenue. The Ld. AR for the assessee submits that Assessing Officer levied penalty on the addition on account of agricultural income, which was made on estimated basis by taking average of two years’ agricultural income and on addition of interest expenses, the assessee offered himself, during the assessment. Therefore, there was no occasion for Assessing Officer to levy such penalty. To support his submission, Ld. AR for the assessee relied upon the following case law:  Price Waterhouse Coopers Pvt. Ltd. vs. CIT [2012] 77 DTR 0153 (2012) 253CTR 0001, (2012) 348 ITR 0306, (2012) 211 Taxman 0040 (SC)

I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I have also deliberated on the case law cited by Ld. AR for the assessee. I find that Assessing Officer during the assessment, made addition on account of agricultural income on the basis of average income of two years and added Rs.1,57,600/-. Admittedly such addition is based on estimation of two years’ average income and on such estimation, no penalty is leviable. As it is settled law that on estimation addition no penalty is leviable.