For additions based on estimates, Section 271(1)(c) does not impose a penalty
Fact and issue of the case
This appeal filed by the assessee is directed against the order dated 29.01.2019 passed by the Commissioner of Income Tax (Appeals) – XXV, New Delhi for Assessment Year 2014-15.
Brief facts of the case as culled out from the material on record are as under :-
Assessee is an individual who filed her return of income for A.Y. 2014-15 on 30.03.2015 declaring total income at Rs.19,38,950/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 22.12.2016 and the total income was determined at Rs.24,93,675/- inter alia by making addition of Rs.5,54,725/- being interest on interest free loans and advances aggregating to Rs.11,09,45,000/-. On such addition, AO vide penalty order passed u/s 271(1)(c) of the Act dated 19.05.2017 levied penalty of Rs.1,71,411/-.
Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 29.01.2019 in Appeal No.10367/18-19 dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal before the Tribunal and has raised the following grounds:
That the learned Commissioner of Income Tax (Appeals)-25, has erred both in law and on facts in confirming penalty of Rs.1,71,411/ levied by assessing officer under section 271(1)(c) of Income Tax Act, 1961.
That the learned Commissioner of Income Tax (Appeals)-25, has erred both in law and on facts in confirming penalty of Rs. 1,71,411/- levied by assessing officer under section 271(1)(c) of Income Tax Act, 1961 without appreciating that the order passed by Ld AO was in absence of granting proper opportunity of being heard to appellant.
That the learned Commissioner of Income Tax (Appeals)-25, has erred both in law and on facts in confirming penalty of Rs.1,71,411/- levied by assessing officer under section 271(1)(c) of Income Tax Act, 1961 without affording proper opportunity of being to appellant.
That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-25, New Delhi, erred in upholding levying penalty of Rs. 1,71,411/- u/s 271 (1)(c) of Income Tax Act. 1961, levied by assessing officer in absence of any satisfaction drawn that the disallowances forming basis of penalty made at assessment stage are on account of deliberate, malafide intention of the assessee to conceal the particulars or nor furnished inaccurate particulars.
That That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-25, New Delhi, erred in upholding levying penalty of Rs. 1,71,411/- u/s 271 (1)(c) without appreciating that the Ld. A.O. levied penalty without establishing that the explanation furnished by the appellant was false.
That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-25, New Delhi, erred in upholding penalty order pervasive to binding decisions interpreting provision explained by courts.
That on the facts and circumstances of the case and in law the Hon’ble Commissioner of Income Tax (Appeals)-25, New Delhi, erred in not appreciating the facts of the case.
That without prejudice and in the alternative the order passed by the Ld. Assessing Officer and confirmed by Hon’ble Commissioner of Income Tax (Appeals)-25, New Delhi, is bad in law.
That the grounds of appeal as herein are without prejudice to each other.
That the appellant craves to add, amend, alter or forgo any ground(s) either before or at the time of hearing of the appeal.
Before us, Learned AR submitted that though the assessee has raised various grounds but the sole controversy is with respect to the levying of penalty u/s 271(1)(c) of the Act.
Before us, Learned AR submitted that during the year under consideration, assessee had taken loans and advances from various parties and AO had made addition of interest calculated @ 0.5% on the aggregate amount of loan of Rs.11,09,45,000/- taken by the assessee. The addition was made as “income from other sources”. He submitted that the addition has been made on estimate basis and it is a settled law that no penalty can be levied on addition made on estimation basis. He also submitted that CIT(A) has passed an ex- parte order and not on merits. He therefore submitted that the penalty levied by AO and upheld by CIT(A) be deleted.
Learned DR on the other hand took us through the observations of AO and findings of CIT(A) and pointed to the findings of CIT(A) wherein he has noted that despite various opportunities granted to the assessee, no meaningful representation was made by assessee, In such circumstances, he submitted that CIT(A) has rightly confirmed the penalty levied by AO. He thus supported the order of CIT(A).
Observation of the court
We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the levy of penalty u/s 271(1)(c) of the Act. It is an undisputed fact that during the year under consideration, assessee had taken aggregate loans and advances from various parties (listed at page 2 of the assessment order). On the aggregate of such loans of Rs.11,09,45,000/- and in absence of details to the satisfaction of AO, AO calculated the income @ 0.5% of the aggregate loans and advances and determined the income to be taxed under “income from other source” at Rs.5,54,725/-. On such additions, AO has levied the penalty u/s 271(1)(c) of the Act. The aforesaid fact clearly reveals that the addition has been made on purely at the estimate basis. We are of the view that it is a settled position that on the addition made on estimate basis, no penalty u/s 271(1)(c) of the Act is leviable as for levying of penalty u/s 271(1)(c) of the Act, AO has to clearly prove that assessee has concealed his income or has furnished inaccurate particulars of income. Considering the undisputed fact that addition on which the penalty has been levied is on estimate basis, we are of the view that AO was not justified in leving of penalty u/s 271(1)(c) of the Act. We accordingly direct AO to delete the levy of penalty u/s 271(1)(c) of the Act. Thus the ground of assessee is allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 31.05.2023
Conclusion
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
