Short overview  Mere revision of income to a higher figure on estimate basis by AO did  not automatically warrant an inference of concealment of income by assesse and without any definite finding recorded by AO with regard to concealment of income or furnishing of inaccurate particulars of income, there could not be any question of imposition of any penalty under section 271(1)(c).

AO made trading additions by applying higher GP rate and levied penalty under section 271(1)(c) on this count. Assessee’s case was that no findings were recorded by AO in the assessment order that assessee had concealed income or furnished inaccurate particulars thereof.

 It is held that  Mere revision of income to a higher figure on estimate basis by AO did  not automatically warrant an inference of concealment of income by the assesse and without any definite finding recorded by AO with regard to concealment of income or furnishing of inaccurate particulars of income, there could not be any question of imposition of any penalty in such a case where additions was made purely on estimate basis.

Decision: In assessee’s favour.

Supported by: Gulraj Vaswani v. ACIT, (ITSSA No. 21/JP/06) in Tax World Vol.-XXXIX page-35 (ii) Smt. Bitoli Devi v. ACIT (2007) 110 TTJ (Luck) 735 : 2007 TaxPub(DT) 1196 (Luck-Trib)  Enfield Industries Ltd. v. DCIT, (2007) 13 SOT 28 (URO) : (2007) 107 ITD 1 (Kol.) : 2007 TaxPub(DT) 0511 (Kol-Trib) (iv) CIT v. P.H.I. Seeds India Ltd. (2008) 159 Taxman 9 (Delhi) : 2008 TaxPub(DT) 0402 (Del-HC) CIT v. K.R. Chinni Krishna Chetty (2000) 246 ITR 121 (Mad) : 2000 TaxPub(DT) 0250 (Mad-HC).CIT v. S. Rahamat Khan Birbal Khan Badruddin & Party, (1999) 240 ITR 778 (Raj.) : 1999 TaxPub(DT) 1242 (Raj-HC)ACIT v. Bansiwala Iron & Steel Re-rolling Mills, 21 TW 533 (JP)CIT v. Subhash Trading Co., (1996) 221 ITR 110 (Guj.) : 1996 TaxPub(DT) 0591 (Guj-HC)Harigopal Singh v. CIT, (2002) 258 ITR 85 (P&H) : 2002 TaxPub(DT) 1625 (P&H-HC)ACIT v. Ganpat Lal Goyal, 32 TW 91 (JP).

IN THE ITAT, JAIPUR BENCH

N.K. SAINI, V.P. & SANDEEP GOSAIN, J.M.

Vishnu Tambi v. DCIT

ITA Nos. 965 to 969/JP/2018

14 September, 2020

Assessee by: S.L. Poddar, Advocate

Revenue by: Chanchal Meena, Addl. Commissioner–Departmental Representative

ORDER

Per Bench

These five appeals have been filed by the assessee against common order of learned Commissioner (Appeals)-4, Jaipur, dated 2-7-2018 for the assessment years 2005-06, 2006-07, 2007-08, 2009-10 & 2010-11 passed under 271(1)(c) of the Income Tax Act, 1961 on the grounds mentioned hereinbelow.

ITA No. 965/JP/2018–Assessment year 2005-06

“1. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 without striking off the irrelevant portion of the printed Show Cause Notice, dated 26-12-2011 viz. “furnished inaccurate particulars of income” or “concealed particulars of such income” is bad in law.

2. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 is against the principles of judicial consistency and therefore, bad in law.
3. That the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 isvoid ab initiodeserves to be quashed as no satisfaction was recorded with reference to concealment of income or furnishing inaccurate particulars of income.
4. In the facts and circumstances of the case the assessing officer has erred in imposing the penalty of Rs. 13,000 under section 271(1)(c) of the Income Tax Act, 1961

ITA No. 966/JP/2018–Assessment year 2006-07

“1. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 without striking off the irrelevant portion of the printed Show Cause Notice, dated 26-12-2011 viz. “furnished inaccurate particulars of income” or “concealed particulars of such income” is bad in law.

2. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 is against the principles of judicial consistency and therefore, bad in law.
3. That the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 isvoid ab initiodeserves to be quashed as no satisfaction was recorded with reference to concealment of income or furnishing inaccurate particulars of income.
4. In the facts and circumstances of the case the assessing officer has erred in imposing the penalty of Rs. 12,000 under section 271(1)(c) of the Income Tax Act, 1961

ITA No. 967/JP/2018–Assessment year 2007-08

“1. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 without striking off the irrelevant portion of the printed Show Cause Notice, dated 26-12-2011 viz. “furnished inaccurate particulars of income” or “concealed particulars of such income” is bade in law.

2. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 is against the principles of judicial consistency and therefore, bad in law.
3. That the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 isvoid ab initiodeserves to be quashed as no satisfaction was recorded with reference to concealment of income or furnishing inaccurate particulars of income.
4. In the facts and circumstances of the case the assessing officer has erred in imposing the penalty of Rs. 12,000 under section 271(1)(c) of the Income Tax Act, 1961

ITA No. 968/JP/2018–Assessment year 2009-10

“1. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 without striking off the irrelevant portion of the printed Show Cause Notice, dated 26-12-2011 viz. “furnished inaccurate particulars of income” or “concealed particulars of such income” is bade in law.

2. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 is against the principles of judicial consistency and therefore, bad in law.
3. That the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 isvoid ab initiodeserves to be quashed as no satisfaction was recorded with reference to concealment of income or furnishing inaccurate particulars of income.
4. In the facts and circumstances of the case the assessing officer has erred in imposing the penalty of Rs. 10,000 under section 271(1)(c) of the Income Tax Act, 1961

ITA No. 969/JP/2018–Assessment year 2010-11

“1. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 without striking off the irrelevant portion of the printed Show Cause Notice, dated 26-12-2011 viz. “furnished inaccurate particulars of income” or “concealed particulars of such income” is bade in law.

2. Under the facts and circumstances of the case and in law the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 is against the principles of judicial consistency and therefore, bad in law.
3. That the order passed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 isvoid ab initiodeserves to be quashed as no satisfaction was recorded with reference to concealment of income or furnishing inaccurate particulars of income.
4. In the facts and circumstances of the case the assessing officer has erred in imposing the penalty of Rs. 7,000 under section 271(1)(c) of the Income Tax Act, 1961

2.1 Due to prevailing COVID-19 pandemic condition, the hearing of the appeal is concluded through video conference. First of all, we take up the appeal of the assessee for the assessment year 2005-06 for adjudication as per the grounds of appeal raised hereinabove.

3.1 During the course of hearing, the learned Authorised Representative of the assessee has not pressed the Ground No. 1 to 3. Hence, the same are dismissed being not pressed.

4.1 The Ground No. 4 raised by the assessee relates to challenging the order of the learned Commissioner (Appeals) in confirming the penalty levied by the assessing officer under section 271(1) (c) of the Act.

4.2 Brief facts of the case are that the assessee is engaged in the wholesale business of sarees and salwar suits under the name and style of M/s. Manish Enterprises. A search and seizure operation was carried out on 23-7-2009 at the residential and business premises of the assessee. Notice under section 153A of the Income Tax Act, 1961 was issued on 7-12-2009. In response to notice under section 153A, the assessee has filed returns in the above assessment years.

The assessing officer has completed the assessment under section 143(3)/153A of the Income Tax Act, 1961 inter alia making trading additions by applying the GP rate of 10% as against GP rate declared by the assessee in all the assessment years.

4.3 Aggrieved by the order of the assessing officer, the assessee preferred appeal before the learned Commissioner (Appeals) who restricted the G.P. Rate at 8.5% on estimate basis.

4.4 Subsequently, the assessing officer levied the penalty in the above case under section 271(1)(c) of the Act with respect to addition confirmed by the learned Commissioner (Appeals). On appeal, before the learned Commissioner (Appeals), he confirmed the penalty levied by the assessing officer.

4.5 Now aggrieved by the order of the learned Commissioner (Appeals) regarding confirming the penalty under section 271(1)(c) of the Act, the assessee has preferred an appeal before us on the ground mentioned hereinabove.

4.6 During the course of hearing, the learned Authorised Representative of the reiterated the same arguments as raised by him before the learned Commissioner (Appeals) and he also relied on the following written submission submitted before us.

“Ground no. 4 :–

Assessment year 2005-06

In the facts and circumstances of the case the learned assessing officer has erred in imposing the penalty of Rs. 13,000 under section 271(1)(c) of the Income Tax Act, 1961.

Assessment year 2006-07

In the facts and circumstances of the case the learned assessing officer has erred in imposing the penalty of Rs. 12,000 under section 271(1)(c) of the Income Tax Act, 1961.

Assessment year 2007-08

In the facts and circumstances of the case the learned assessing officer has erred in imposing the penalty of Rs. 12,000 under section 271(1)(c) of the Income Tax Act, 1961.

Assessment year 2009-10

In the facts and circumstances of the case the learned assessing officer has erred in imposing the penalty of Rs. 10,000 under section 271(1)(c) of the Income Tax Act, 1961.

Assessment year 2010-11

In the facts and circumstances of the case the learned assessing officer has erred in imposing the penalty of Rs. 7,000 under section 271(1)(c) of the Income Tax Act, 1961.

1. Facts of the case:–The learned assessing officer has completed the assessment under section 143(3)/153A of the Income Tax Act, 1961 for all the assessment years pertaining to block period. The below table shows the addition made and confirmed year wise–

Sr. No.	Assessment year	Addition made by the AO	Addition sustained by the learned Commissioner (Appeals)
1	2005-06	79289	41135
2	2006-07	126930	70984
3	2007-08	105608	58723
4	2009-10	152688	84449
5	2010-11	94864 + 17892	47254

In the original assessment order the addition was made because certain incriminating documents were found in the form of approval memos and blank bill book of a Surat Dealer. But no specific misuse of those material was found. The learned assessing officer under the suspicion has invoked the provisions of section 145(3) of the Income Tax Act, 1961 and applied the GP Rate by enhancing GP Rate made the addition @ 10% against declared GP which is around 8% in all the years.

In the assessment no specific addition was made on the basis of incriminating material found. The addition was only on estimated basis.

2. No penalty can be levied on estimated additions.–In this case the learned assessing officer made addition as per table above on account of application of GP rate of 10%. There is no finding in the assessment order that the assessee has furnished inaccurate particulars of his income. The learned assessing officer has not given any specific finding that the assessee has concealed the income.

Simply he has invoked the provision of section 145(3) of the Income Tax Act, 1961 and estimated the income of the assessee on the basis of earlier history of the assessee. Thus it is a case of an estimate against an estimate hence no penalty is leviable in such a case where addition are based purely on estimate basis. The following cases are quoted for support–

(i) Gulraj Vaswani v. ACIT, (ITSSA No. 21/JP/06) in Tax World Vol.-XXXIX page-35 held that “Before Tribunal it has been submitted that at every level there has been an estimation varying as per difference of opinion from authority to authority and hence penalty cannot be levied on the estimated addition–Assessee has also submitted that no satisfaction about concealment of income has been recorded by the assessing officer during the course of assessment proceedings-Tribunal have considering these facts deleted the penalty–

(ii) Smt. Bitoli Devi v. ACIT (2007) 110 TTJ (Luck) 735 : 2007 TaxPub(DT) 1196 (Luck-Trib) (Unless any positive concealment is found no penalty is leviable on basis of addition made on estimate)

(iii) Enfield Industries Ltd. v. DCIT, (2007) 13 SOT 28 (URO) : (2007) 107 ITD 1 (Kol.) : 2007 TaxPub(DT) 0511 (Kol-Trib) (Onus would lie heavily with Department to prove concealment for purpose of imposing penalty under section 158 BFA(2))

(iv) CIT v. P.H.I. Seeds India Ltd. (2008) 159 Taxman 9 (Delhi) : 2008 TaxPub(DT) 0402 (Del-HC) :–

The act does envisage or explicitly provide that in every case where return is not accepted as correct and assessment is framed at a higher income than that presented, penalty proceedings under section 271 (1)(c) must be initiated. Section 271(1)(c) is attracted only when the assessee has concealed his income.

When two opinions are possible, adopting one of them can scarcely be viewed as mala fide, with intent to evade the payment of income tax.

(v) Penalty can not be levied only estimated addition and reliance is placed on the following decisions :–

1. CIT v. S. Rahamat Khan Birbal Khan Badruddin & Party, (1999) 240 ITR 778 (Raj.) : 1999 TaxPub(DT) 1242 (Raj-HC)
2. ACIT v. Bansiwala Iron & Steel Re-rolling Mills, 21 TW 533 (JP)
3. CIT v. Subhash Trading Co., (1996) 221 ITR 110 (Guj.) : 1996 TaxPub(DT) 0591 (Guj-HC)
4. Harigopal Singh v. CIT, (2002) 258 ITR 85 (P&H) : 2002 TaxPub(DT) 1625 (P&H-HC)
5. ACIT v. Ganpat Lal Goyal, 32 TW 91 (JP)

In view of the aforesaid facts it is a case most justified for deletion of the penalty.

3. Definite Finding about concealment is necessary–Under section 271(1)(c) of the Act the authority is given the discretion to levy a penalty if there is concealment of particulars of income and even as regards the quantum of the penalty there is a discretion. Of greater importance is the necessity for a definite finding that there is concealment, as without such a finding of concealment, there can be no question of imposing any penalty. The mere revision of the income to a higher figure by the assessing authority does not automatically warrant an inference of concealment of the expenditure on the construction. The addition to the income of the assessee based on estimate basis. Concealment implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. The fact that the valuer assessed the building at a figure higher than the one reported by the assessee does not by itself lead to the inference that there had been concealment–CIT v. K.R. Chinni Krishna Chetty (2000) 246 ITR 121 (Mad) : 2000 TaxPub(DT) 0250 (Mad-HC)

4.7 On the other hand, the learned Departmental Representative relied on the orders passed by the Revenue authorities.

4.8 We have heard the learned counsels for both the parties and we have also perused the materials placed on record, deliberated upon judgments cited by the parties as well as the orders of the Revenue authorities. From the facts, we noticed that the assessing officer had made the addition on account of application of G.P. Rate of 10% whereas no findings were recorded by the assessing officer in the assessment order that the assessee had furnished inaccurate particulars of income or had concealed the income. The assessing officer had invoked the provisions of section 145(3) of the Act and estimated the income of the assessee on the basis of earlier history of the case. Therefore, we are of the view that it is a case of an estimate against an estimate. Hence, no penalty is leviable in such a case where additions are based purely on estimate basis. We also draw strength from the following case laws.

(i) Gulraj Vaswani v. ACIT, (ITSSA No. 21/JP/06) in Tax World Vol.-XXXIX page-35 held that “Before Tribunal it has been submitted that at every level there has been an estimation varying as per difference of opinion from authority to authority and hence penalty cannot be levied on the estimated addition–Assessee has also submitted that no satisfaction about concealment of income has been recorded by the assessing officer during the course of assessment proceedings-Tribunal have considering these facts deleted the penalty–

(ii) Smt. Bitoli Devi v. ACIT (2007) 110 TTJ (Luck) 735 : 2007 TaxPub(DT) 1196 (Luck-Trib) (Unless any positive concealment is found no penalty is leviable on basis of addition made on estimate)

(iii) Enfield Industries Ltd. v. DCIT, (2007) 13 SOT 28 (URO) : (2007) 107 ITD 1 (Kol.) : 2007 TaxPub(DT) 0511 (Kol-Trib) (Onus would lie heavily with Department to prove concealment for purpose of imposing penalty under section 158 BFA(2))

(iv) CIT v. P.H.I. Seeds India Ltd. (2008) 159 Taxman 9 (Delhi) : 2008 TaxPub(DT) 0402 (Del-HC):–

The act does envisage or explicitly provide that in every case where return is not accepted as correct and assessment is framed at a higher income than that presented, penalty proceedings under section 271(1)(c) must be initiated. Section 271(1)(c) is attracted only when the assessee has concealed his income.

When two opinions are possible, adopting one of them can scarcely be viewed as mala fide, with intent to evade the payment of income tax.

(v) Penalty can not be levied only estimated addition and reliance is placed on the following decisions :–

1. CIT v. S. Rahamat Khan Birbal Khan Badruddin & Party, (1999) 240 ITR 778 (Raj.) : 1999 TaxPub(DT) 1242 (Raj-HC)
2. ACIT v. Bansiwala Iron & Steel Re-rolling Mills, 21 TW 533 (JP)
3. CIT v. Subhash Trading Co., (1996) 221 ITR 110 (Guj.) : 1996 TaxPub(DT) 0591 (Guj-HC)
4. Harigopal Singh v. CIT, (2002) 258 ITR 85 (P&H) : 2002 TaxPub(DT) 1625 (P&H-HC)
5. ACIT v. Ganpat Lal Goyal, 32 TW 91 (JP)

4.9 We are also of the view that under section 271(1)(c) of the Act, the authority has been given discretion to levy the penalty in case there is a concealment of particulars of income and also with regard to quantum of penalty. However, it is a basic need of the provisions of law that definite finding is required to be recorded by the Revenue Officer for reaching to a conclusion with regard to concealment of income or furnishing of inaccurate particulars of income and without any such findings, there cannot be any question of imposition of any penalty. The mere revision of income to a higher figure on estimate basis by the assessing officer does not automatically warrant an inference of concealment of income by the assessee. The addition to the income of the assessee in this case is based on estimate basis whereas the concealment in our views implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. On this proposition, we draw strength from the decision of Hon’ble Madras High Court in the case of CIT v. K.R. Chinni Krishna Chetty (2000) 246 ITR 121 (Mad) : 2000 TaxPub(DT) 0250 (Mad-HC). Therefore, keeping in view the totality of the facts and circumstances of the case, we are of the considered view that in this case the additions were made on the basis of estimation and as discussed in the cases referred above, the penalty cannot be levied on the basis of estimated additions. Therefore, we allow this ground of appeal raised by the assessee and delete the penalty levied by the assessing officer and confirmed by the learned Commissioner (Appeals). Thus Ground No. 4 of the assessee is allowed.

5. As regards the other appeals of the assessee for the assessment year 2006-07, 2007-08, 2009-10 & 2010-11, the learned Authorised Representative of the assessee during the course of hearing has not pressed the Ground Nos. 1 to 3.

Hence, the same are dismissed being not pressed.

5.1 As regards the Ground No. 4 of the assessee for the assessment year 2006-07, 2007-08, 2009-10 & 2010-11, the decision taken by the Bench in the assessment year 2005-06 shall apply mutatis mutandis in the case of the assessee for the assessment years 2006-07, 2007-08, 2009-10 & 2010-11 being the similar facts and circumstances of the case of the assessee. Thus Ground No. 4 of the assessee in the above assessment years is allowed.

6. In the result, the appeals filed by the assessee are partly allowed.