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July 11, 2022

Penalty under Section 271(1)(c) not applicable if income is calculated on an estimated basis

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Penalty under Section 271(1)(c) not applicable if income is calculated on an estimated basis

Facts and Issue of the case

This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals), Ghaziabad [hereinafter referred to CIT (Appeals)] dated 13.11.2017 for assessment year 2013-14 in sustaining the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 (the Act).

The ld. Counsel for the assessee, at the outset, submits that the Assessing Officer while completing the assessment under Section 143(3) of the Act estimated the net profit at 6.50% on its turnover as against net profit declared by the assessee at 5.89% of the turnover. The ld. Counsel submits that the Assessing Officer estimated net profit by rejecting the books of accounts as there was substantial increase in expenditure and by observing that no wage register, stock register was produced and, therefore, the books of accounts are not complete. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act and imposed penalty of Rs.4,87,837/- which was sustained by the ld. CIT (Appeals).

The ld. Counsel for the assessee placing reliance on the decision of the co-ordinate bench Delhi in the case of Mayasheel Construction Vs. DCIT in ITA. No. 7173/Del/2017 dated 21.06.2018 and the decision of the Mumbai Bench in the case of ACIT Vs. M/s. Colo Color Pvt. Ltd. in ITA. No. 5390/Mum/2018 dated 31.07.2020 submits that when the income is computed on estimated basis penalty under Section 271(1)(c) of the Act cannot be levied for concealment of income or for furnishing inaccurate particulars of income.

Observation by the court

The court had heard the rival submissions perused the orders of the authorities below and the case laws relied upon. The Assessing Officer made addition of Rs.15,78,761/- by estimating the net profit at 6.50% as against 5.89% declared by the assessee on its turnover. The Assessing Officer rejected the books of accounts and estimated the net profit and imposed penalty under Section 271(1)(c) of the Act which was sustained by the ld. CIT (Appeals).

The Hon’ble Punjab & Haryana High Court held that when the additions are made on estimate basis that by itself does not lead to the conclusion that the assessee either concealed the particulars of his income or furnished inaccurate particulars of such income .

In the case on hand the Assessing Officer has only estimated the net profit by rejecting books of accounts and estimation of net profit at higher percentage than the declared percentage by the assessee and, therefore, it cannot conclusively prove of any concealment of income or furnishing of inaccurate particulars of such income. Thus, respectfully following the above said decisions, we delete the penalty levied under Section 271(1)(c) of the Act.

NBK-Infrastructure-P.-Ltd-Vs-JCIT-ITAT-Delhi

Conclusion

The appeal of the assesse is allowed by the court.

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