MANISH CHAWLA,DELHI vs. ADDITIONAL/ JOINT/ DEPUTY/ ASSISTANT COMMISSIONER OF INCOME-TAX/ INCOME-TAX OFFICER, DELHI

The appeal in AY 2011-12 arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2024- 25/1073697201(1) dated 25.02.2025 against the order of assessment passed u/s 271(1)(c) of the Income-tax Act, 1961 dated 16.03.2022 (hereinafter referred to as ‘the Act’) by ITO, Ward-41(2), Delhi (hereinafter referred to as ‘ld. AO’).

The only effective issue to be decided in this appeal is as to whether ld CIT(A) was justified in confirming the levy of penalty on an estimated income in the facts and circumstances of the instant case.

None appeared on behalf of the assessee. I have heard the ld DR and perused the material available on record. I find the assessment was framed u/s section 147 r.w.s. Section 143(3) of the Act on 27.11.2018 for AY 2011-12, determining the total income of ₹38 lakhs after reducing the returned income of Page | 1 ₹1,87,132/-. The assessee had filed returned income on presumptive basis u/s 44AD of the Act in the sum of ₹1,87,132/- on gross turnover of ₹22,50,000/-. The ld AO on perusal of Form 26AS observed that assessee had actually received altogether ₹38 lakhs as commission/ brokerage income from different parties, whereas it has disclosed only 22,50,000/- as gross receipt. The assessee explained that he is following cash system of accounting and proved only a sum of ₹22,50,000/- was received during the year and balance amount of ₹15,50,000/- was received by the assessee in the next year and duly offered to tax u/s 44AD of the Act. But the payer had deducted tax at source on accrual basis, which had lead to the discrepancy in Form 26AS. This explanation given by the assessee was not found satisfactory and accordingly, the ld AO proceeded to make an addition of ₹36,12,868/- [38,00,000 (-) reported income of ₹187,132/-] and completed the assessment on 27.11.2018. Penalty proceedings u/s 271(1)(c) of the Act stood initiated in the sum which culminated in levy of penalty vide order dated 16.03.2022 in the sum of Rs. 4,29,510/-. The addition made by the ld AO in the quantum proceedings were reduced to 25% of the commission income by the ld CIT(A). Thereafter, the penalty levied @300% was also reduced to 100% by the ld CIT(A) in the appeal file against the penalty u/s 271(1)(c) of the Act. Accordingly, ld CIT(A) restricted the penalty amount to ₹1,43,170/- as against Rs. 4,29,510/- levied by the ld AO.

I find that ultimately, the penalty has been made only on estimated income. It is trite law that no penalty could survive on estimated income as there cannot be any partial concealment and non-concealment of income. Hence, the levy of penalty u/s 271(1)(c) of the Act is hereby directed to be deleted. Accordingly, grounds raised by the assessee are allowed on merits.

Since the relief is granted to the assessee on merits, the other legal grounds challenging the legality of the penalty proceedings is not adjudicated and it is left open.

In the result, the appeal of the assessee is allowed.