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Judgment
Jainendra Kumar Ranka, J.—Revenue is in appeal under s. 260A of the IT Act against the order of the Tribunal dt. 6th Oct., 2006 raising the following questions for our consideration : (i) Whether under the facts and circumstances of the case and in law, the Tribunal was justified in deleting the penalty levied under s. 271(1)(c)?
(ii) Whether under the facts and circumstances of the case and in law the order of the Tribunal can be sustained when the additions made by the AO were upheld by the Tribunal and therefore, the assessee was falling under the four corners of s. 271(1)(c)?
(iii) Whether the penalty is imposable or not when the additions are made on estimation and the same are sustained at appellate stage?
The issue pertains to the penalty imposed by the AO on the amount of Rs. 1,00,000 which was sustained as addition, which was confirmed by the CIT(A) under s. 271(1)(c) of the IT Act, 1961 (for short ''the Act of 1961'') for the asst. yr. 1996-97. The said penalty was, however, deleted by the Tribunal.
Brief facts may be observed that the respondent is a registered firm and is engaged in retreading of old (worn out) tyres of all vehicles. Besides the job work, the respondent-assessee was also selling such raw material to local parties. A survey operation came to be carried out at the business premises of the respondent on 16th Nov., 1995, where some documents were found, which according to the AO, were not satisfactorily explained and, accordingly, on account of the said discrepancies, an estimated addition was made of Rs. 1,44,000. The respondent preferred an appeal against the said addition of Rs. 1,44,000, which came to be sustained by the CIT(A) and on further challenge before the Tribunal, the Tribunal modified the order passed by the lower authorities and restricted the addition to Rs. 1,00,000 by inter alia, referring to the fact that addition was made on estimate basis by lower authorities and looking to the facts on record and the explanation of the assessee, part relief of Rs. 44,000 was granted, thereby sustaining an addition of Rs. 1,00,000 on estimate basis.
In the penalty proceedings, the assessee submitted that it has not concealed the particulars of income, nor has it deliberately furnished inaccurate particulars of such income. It was further submitted by the assessee that addition has been made on estimate basis and only because of estimated addition, penalty in law under s. 271(1)(c) of the Act cannot be levied but AO was not satisfied and accordingly, penalty came to be imposed by the AO. In first appeal the penalty was sustained, as aforesaid. However the Tribunal, as aforesaid, has deleted the said penalty.
Ms. Parinitoo Jain, learned counsel for the appellant-Department submitted that the Tribunal was unjustified in deleting the penalty as the addition was sustained by the final fact-finding authority i.e., the Tribunal itself, who came to the conclusion that addition was called for and sustained major addition. She submitted that the AO had to make the estimated addition as during the course of survey, the assessee could not offer proper explanation which was based on the discrepancies and addition was made. She further submitted that though, the addition has been sustained on estimate basis, but then it cannot be said that there is no concealment. Accordingly, she submitted that Tribunal erred in deleting the penalty and questions of Jaw do arise and require consideration of this Court.
Mr. B.B. Ojha, learned counsel for the respondent submitted that merely because the addition has been sustained, that too on estimate basis, it cannot be said that the assessee concealed the income or furnished inaccurate particulars of such income. He further submitted that no positive income has been found or admitted. It is merely rejection of a claim, which could not be substantiated by the assessee and the AO has not been able to justify the imposition of penalty and the Tribunal had rightly deleted the penalty. He further submitted that merely because proper explanation was not offered, it does not make out that the assessee became liable for imposition of penalty. He also submitted that it is basically a finding of fact and no question of law arises for consideration.
We have considered the arguments advanced by the learned counsel for the parties and have also perused the impugned order.
On perusal of facts, it is apparent that the Tribunal in the regular proceedings had upheld the addition by observing that the AO, though justified in making some addition, however, it observed that even the AO had made an estimated addition for he was not sure as to exact amount of addition, to be made and considering the peculiar facts of the case, the Tribunal modified the order by observing that "we find justification in the order of the lower authorities who have rightly made the addition on estimate basis. But the same is looking on higher side due to the peculiar facts and circumstances of the case. By modifying both the orders of the lower authorities, we restrict the addition to Rs. 1,00,000 (Rs. 1 lac) only. Thus the assessee will get the relief of Rs. 44,000 (Rs. forty four thousand) from the orders of the lower authorities on ad hoc basis".
On perusal of facts stated hereinbefore, it transpires that the addition has been sustained purely on estimate basis and in our view, no positive fact or finding has been found so as to even make the said addition. It is according to us, a pure guesswork and in our view, on such guesswork or estimation, no penalty under s. 271(1)(c) of the Act can be said to be leviable. For imposing penalty under s. 271(1)(c) of the Act, the AO has to clearly prove the conduct of the assessee, which in this case, has not been proved. Merely because the books of account of the assessee were rejected or estimated addition was made, in our view, no penalty is leviable. The assessee offered an explanation, which could not be termed as not bona fide. In the absence of any corroborative evidence to prove the charge of concealment, in our view, the penalty could not be imposed.
Penalty proceedings are entirely distinct from assessment proceedings and howsoever relevant and good the findings in assessment proceedings may be, they are not conclusive so far as the penalty proceedings are concerned.
From the above discussion, it can be seen that the opinion of the Tribunal with respect to deletion is based on appreciation of evidence on record.
Hon''ble apex Court in the case of Dilip N. Shroff Karta of N.D. Shroff Vs. Joint Commissioner of Income Tax, Special Range Mumbai and Another, has held that if there is no evidence or material to show that the assessee had deliberately furnished inaccurate particulars and there was any mala fide intention on his part so as to make him liable for penalty. A mere omission or negligence would not constitute deliberate act of concealing particulars of income or suppressed or furnished inaccurate particulars of income.
The Patna High Court in the case of Commissioner of Income Tax Vs. Kailash Crockery House, had an occasion to consider the issue of penalty under s. 271(1)(c) on the basis of the fact that the GP rate shown by the assessee was found to be low and trading addition was made on estimate basis though the trading addition was sustained by the Tribunal but insofar as penalty under s. 271(1)(c) is concerned, it held that the trading addition had been made on the basis of an estimate and on account of estimated trading addition penalty could not be levied under s. 271(1)(c) of the IT Act.
The Punjab & Haryana High Court in the case of Commissioner of Income Tax Vs. Metal Products of India, has held that merely because the addition has been made on estimate basis that did not automatically lead to the conclusion that there was failure to return the correct income.
The Gujarat High Court in the case of CIT v. Whitelene Chemicals (Tax Appeal No. 496 of 2012, vide order dt. 15th Jan., 2013), has observed that no penalty can be imposed merely because account books of assessee were rejected and that profit was estimated on the basis of fair GP ratio. Assessee filed its explanation which could not be termed as not bona fide and accordingly, the Gujarat High Court came to a conclusion that mere rejection of books of account and estimation of profit cannot be a ground for imposition of penalty.
The Gujarat High Court in the case of Commissioner of Income Tax Vs. Subhash Trading Co., has held as under : "Held, that a best judgment assessment had been made. While the assessee in its books of account disclosed the total sales to be Rs. 7,75,000, the ITO on rejection of the books of account estimated the sales to be Rs. 8,75,000 which on appeal, the Tribunal reduced to Rs. 8,00,000. So also, while the gross profit disclosed by the books of account of the assessee was 5 per cent, the ITO estimate the GP rate at 15 per cent, which again was reduced by the Tribunal to 12 per cent. In this circumstance, in the absence of any other material which might reflect on the conduct of the assessee about a deliberate attempt to maintain false books of account, on a preponderance of probabilities, no other conclusion could be reached than that the failure to return the correct income was not on account of any fraud or gross or wilful neglect on the part of the assessee. The Tribunal was right in holding that penalty of Rs. 92,894 imposed by the 1AC under s. 271(1)(c) of the Act was not justified."
The Punjab & Haryana High Court in the case of Harigopal Singh Vs. Commissioner of Income Tax, has held as under:
In order to attract cl. (c) of s. 271(1)(c) of the Act, it is necessary that there must be concealment by the assessee of the particulars of his income or if he furnishes inaccurate particulars of his income. What is to be seen is whether the assessee in the present case had concealed his income as held by the AO and the Tribunal. He had not maintained any accounts and he filed his return of income on estimate basis. The AO did not agree with the estimate of the assessee and brought his income to tax by increasing it to Rs. 2,07,500. This, too, was on estimate basis. The Tribunal agreed that the income of the assessee had to be assessed on an estimate of the turnover but was of the view that the estimate as made by the AO was highly excessive and it fixed the total income of the assessee at Rs. 1,50,000 for the year under appeal. It is thus, clear that there was a difference of opinion as regards the estimate of the income of the assessee. Since the AO and the Tribunal adopted different estimates in assessing the income of the assessee, it cannot be said that the assessee had ''concealed the particulars of his income'' so as to attract cl. (c) of s. 271(1) of the Act. There is not even an iota of evidence on the record to show that the income of the assessee during the year under appeal was more than the income returned by him. Additions in his income were made, as already observed, on estimate basis and 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. There has to be a positive act of concealment on his part and the onus to prove this is on the Department. We are also of the considered view that the Tribunal grossly erred in law in relying on Expln. 1(B) to s. 271(1)(c) of the Act to raise a presumption against the assessee. The assessee had justified his estimate of income on the basis of household expenditure and other investments made during the relevant period. It is not the case of the Revenue that he had, in fact, incurred expenditure in excess of what he had stated. In this view of the matter, it cannot be said that the explanation furnished by the assessee had not been substantiated or that he had failed to prove that such explanation was not bona fide.
The Madhya Pradesh High Court in the case of Commissioner of Income Tax Vs. Shivnarayan Jamnalal and Co., , held thus:
We have gone through the orders of the Tribunal and the CIT(A). We are satisfied that both the authorities have correctly approached the matter and found that there was no fraudulent attempt on the part of the assessee. The assessee had placed before the authorities whatever books of account it had maintained-whether they were properly maintained or not but it has not with held or concealed any material or made any deliberate attempt to defraud the authorities. The assessing authority has employed the flat rate for assessing income of the assessee and on that basis, he has been taxed.
Therefore, we are of the opinion that the view taken by the Tribunal in setting aside the penalty appears to be justified and we answer both these questions against the Revenue and in favour of the assessee.
The Allahabad High Court in the case of Commissioner of Income Tax Vs. Raj Bans Singh, has held that "On appeal, the Tribunal came to the conclusion that it was a case of an estimate against an estimate and there was no concealment and accordingly it was held that no penalty was imposable".
This Court in the case of Commissioner of Income Tax Vs. Chaturbhuj Bhanwarlal, observed as under:
Having given our anxious consideration to the rival contentions advanced before us and to the law cited by both the sides, we are of the view that the Tribunal proceeded to take into account various circumstances referred to above and had reached the finding after considering those circumstances. It cannot be said that the finding reached by the Tribunal was based on no evidence. All material facts and circumstances positive and negative, constitute evidence and on consideration of the positive and negative circumstances, the finding can be arrived at after weighing the probabilities. Such a finding, in our opinion, cannot be said to be a finding which is vitiated on any count, i.e., such a finding cannot be said to be perverse or based on no evidence. It is true that this course was also open to the Tribunal and the Tribunal should have asked the assessee to submit his explanation with respect to capital accretion considered by the authorities below, but failure to do so by the Tribunal would not in any way affect the jurisdiction of the Tribunal to proceed to decide the appeal on the basis of the material on record. The finding of the Tribunal, therefore, cannot be said to be based on no evidence and the finding that there has been no concealment of income is a finding of fact and it does not raise any question of law and the Tribunal was right in cancelling the penalty imposed on the assessee.
The Delhi High Court in the case of Commissioner of Income Tax Vs. Aero Traders (P) Ltd., has held that penalty is not leviable when income was based on estimated profit and substantially reduced by the Tribunal.
The Punjab & Haryana High Court in the case of Commissioner of Income Tax Vs. Modi Industrial Corporation, has held that where the assessment of the assessee was completed on estimated basis penalty under s. 271(1)(e) of the Act was not imposable with respect to the additions made on such estimate by the AO.
The Chhattisgarh High Court in the case of Commissioner of Income Tax Vs. Vijay Kumar Jain, has held that the assessee declared the net profit by estimating it @ 6.36 per cent of his gross receipt while it was estimated @ 10 per cent of gross receipts by the AO and on these facts held that penalty for concealment cannot be levied as the assessee cannot be said to have concealed any particulars of income or furnished any inaccurate particulars of income. In view of the above facts and what we have observed above, the finding reached by the Tribunal is essentially a finding of fact and no substantial question of law is involved in the present appeal. This appeal has no force and accordingly, the same is dismissed.