SHRI KRISHANMOHAN RAMWADH SHINGH,JAMNAGAR vs. THE INCOME TAX OFFICER, WARD-2(2),, JAMNAGAR

The assessee has raised the following grounds of appeal:

The only effective issue raised by the assessee that the Ld. CIT(A) has erred in confirming the penalty levied under the provision of Section 271(1)(c) of the Act for Rs. 1,38,326/-.

The facts in brief are that the assessee in the represent case is an individual and claimed to be engaged in the business of providing services in relation to all type of pipe fabrication, laying, coating and erection work. In the present case, the assessment was framed by the AO by estimating the net profit of the assessee @8% of the total turnover, determining the total income at Rs. 10,36,850/- only. According to the AO the assessee has declared gross profit for the year under consideration i.e. 5% which was much less than the prevailing market rate. Thus, the addition was made on estimated basis to the total income of the assessee. In the assessment proceedings, the penalty under Section 271(1)(c) of the Act was also initiated for the concealment of income. Finally the AO vide order dated 17.07.2015 confirmed the penalty at Rs. 1,38,326/- being 100% of the amount of tax sought to be evaded.

Aggrieved assessee preferred an appeal before the Ld. CIT(A) who also confirmed the order of the AO by observing as under:

When the matter was called out for hearing no body attended on behalf of the assessee despite the fact that the notice intimating the date of hearing was duly served upon the assessee. Accordingly, in the absence of any cooperation from the side of the assessee, we decided to proceed to adjudicate the issue ex- parte to the assessee.

At the time of hearing the Ld. DR vehemently supported the order of the authoriteis below.

We have heard the Ld. DR and perused the materials available on record. From the preceding discussion we find that assessee in the present case has filed the return of income declaring total income of Rs. 4,68,550/- but the AO was not satisfied with the amount of income declared by the assessee and therefore he estimated the gross total income of the assessee at the rate of 8% of the total turnover. Thus the AO framed the assessment at Rs.10,36,850/- after allowing the deduction available to the assessee under Chapter VI-A of the Act. As such, the addition has been made by the AO to the total income of the assessee vide order dated 30.01.2015. Such addition made by the AO was not challenged before the Ld. CIT-A and thus the addition made by the AO reaches to the finality. However, the AO initiated the penalty proceedings under the assessment proceedings under the provisions of Section 271(1)(c) of the Act on account of concealment of the particulars of income which came to be confirmed at Rs.1,38,326/- being hundred percent of the tax amount sought to be evaded. The amount of penalty was subsequently confirmed by the Ld. CIT-A.

Coming to levy of penalty on the addition of income being estimated profit on the amount of sale, in this regard, we find that the quantum proceeding and the penalty proceeding are different. Any addition or disallowances made under quantum proceeding do not ipso facto empower the revenue authority to levy penalty under Section 271(1)(c) of the Act. Further the addition made was based on estimation and it settled position of law by the various Hon’ble High court that no penalty under Section 271(1)(c) can be sustained in the case of estimated addition. At this juncture we feel pertinent to refer the judgment of Hon’ble Allahabad High Court in case of CIT v. Norton Electronics System Pvt. Ltd [2014] 41 taxamm.com280 [Allahabad] where the Hon’ble bench observed as under: “6. Needless to mention that the quantum proceedings and penalty proceedings are the independent proceedings as per the ratio laid down in the case of Durga Kamal Rice Mills v. CIT [2004] 265 ITR 25/[2003] 130 Taxman 553 (Cal.). When the addition is made on the estimatebasis, no penalty is sustainable as per the ratio laid down in the following cases:— 1. CIT v. Raj Bans Singh [2005] 276 ITR 351 (All.) 2. CWT v. Sanghi Brothers (India) Ltd. [2008] 301 ITR 129 (M.P).; 3. CIT v. Adamkhan [1997] 223 ITR 264/95 Taxman 215 (Mad.); and 4. Harigopal Singh v. CIT [2002] 258 ITR 85/125 Taxman 242 (Punj. & Har.) In view of above, by considering the totality of the facts and circumstances of the case, we find no reason to interfere with the impugned order passed by the Tribunal and the same is hereby sustained along with the reasons mentioned therein. No substantial question of law is emerging from the impugned order.” 10. Similarly, the Punjab and Haryana High Court in the case of CIT vs. Modi Industrial Corpn. [2010] 195 Taxman 68 has also held that where the assessment of the assessee was completed on estimated basis penalty under Section 271(1)(c) of the Act was not imposable with respect to the additions made on such estimate by the Assessing Officer.

Likewise the Patna High Court in case of CIT vs. Kailash Crockery House [1999] 235 ITR 544/107 Taxman 386, also in identical circumstances held as under: “For the assessment year 1979-80, the Assessing Officer enhanced the gross profit rate adopted by the assessee, running crockery business. As a result he made certain trading additions. In view of discrepancy between the income returned and

Therefore, in view of the above judicial precedent, we are of the opinion that no penalty under Section 271(1)(c) of the Act can be sustained on account of addition made by the authorities below based on estimation. Accordingly, we hereby set-aside the order of the Ld. CIT(A) and direct the AO to delete the penalty levied by him. Hence, the ground of appeal raised by the assessee is allowed.

In the result appeal, of the assessee is allowed.