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Income Tax Appellate Tribunal, DELHI BENCHES : SMC-2 : NEW DELHI
Before: SHRI H.S. SIDHU
This appeal by the assessee is directed against the order passed by the CIT (A), Muzaffarnagar on 18.10.2013 upholding the penalty of Rs.2,63,000/- imposed by the AO u/s 271(1)(c) of the Income-tax Act, 1961 in relation to the assessment year 2009-10.
Briefly stated, the facts of the case are that the assessee is an individual, filed return declaring income of Rs. 3,22,740/- on 30.9.2009.
The assessee had claimed deduction u/s. 80IC at Rs. 2,05,97,788/-.
Assessment in this case was completed u/s. 143(3) of the Act on 20.12.2011 determining income at Rs. 11,48,600/-. The addition of Rs. 8,00,000/- was made after the assessee admitted the difference of 6,465 MT in the finished goods and 3995 KG. in raw material. However, the assesee agreed for lump sum addition of Rs. 8,00,000/- on account of difference in stock as per physically valued finished goods and raw material at the time of Survey and stocks as per books as on date.
Thereafter, the AO imposed penalty amounting to Rs.2,63,000/- @ 100% of tax sought to be evaded u/s 271(1)(c) of the Act in relation to the said addition. The ld. CIT(A) upheld the penalty.
I have heard both the parties and perused the relevant material available on record. It is noted that the penalty u/s 271(1)(c) has been imposed on the basis of difference in the value of stock shown by the assessee and as estimated by the AO. But, for that, there is nothing to show that the assessee, in fact, concealed his income or furnished inaccurate particulars of income.
It is an admitted position that the assessee accepted the addition and did not challenge it further. But the mere fact that an addition has been accepted or is confirmed in quantum proceedings cannot be conclusive of the imposition of penalty. The Hon’ble Calcutta High Court in Durga Kamal Rice Mill vs. CIT (2004) 265 ITR 25 (Cal), has held that quantum proceedings are different from penalty proceedings. The Hon’ble Kerala High Court in CIT vs. P.K. Narayanan (1999) 238 ITR 905 (Ker.), has held that despite the addition being confirmed by the Tribunal in quantum proceedings, the penalty can still be deleted by the Tribunal, if the facts justify.
It is noticed that the only basis of addition is the estimate of valuation made by the AO in valuing the stock. It is also noted that assessment completed u/s. 143(3) and assessee explained the difference in stock and reconciled the difference in stock and reconciled the difference which is reduced to Raw Material 3995 KG and Finished Goods 6.465 Kg. Besides this the AO had agreed to the submission of the Assessee that the accuracy of the weight in finished goods at the time of survey cannot be denied. Apart from the estimation made by the AO, there is nothing to show that the way in which the assessee valued its stock was incorrect. This divulges that the addition has been made only on the basis of estimate made by the AO. 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). I also find that similar view was taken by the ITAT, SMC, Bench, New Delhi in (AY 2009-10) in the case of Rajiv Kumar Garg vs. ITO vide order dated 4 15.6.2015. 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 stock, the same cannot be sustained. Coming to the impugned order, I order for the deletion of penalty amounting to Rs.2,63,000/-.
In the result, the appeal filed by the Assessee stands allowed.
The Order pronounced in the Open Court on 04.11.2015.