Sapra Iron Store vs Income Tax Officer

PER VIKAS AWASTHY, JM:

These appeals by the assessee are directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short 'the CIT(A)'] for AY 2012-13 & 2013-14, upholding levy of penalty u/s.271(1)(c) of the Income Tax Act,1961(hereinafter referred to as 'the Act') for respective assessment years. Both impugned orders are of even date i.e. 13.12.2024.

These appeals are time-barred by 10 days. The assessee has filed petitions for condonation of delay supported by medical records. After perusal of the same, we are satisfied that the delay in filing the appeals was neither intentional nor deliberate but occurred for the reasons stated in the condonation petition, which appear to be bona fide. Accordingly, the delay in filing the appeals is condoned and both the appeals are admitted for adjudication on merits.

Since identical issues are involved in both appeals, they were heard together and are being disposed of by this consolidated order for the sake of convenience.

Shri V K Sabharwal, appearing on behalf of the assessee submitted that the assessee is engaged in trading of ferrous and non-ferrous metals. The assessment for AY 2012-13 and 2013-14 were made u/s.143 r.w.s. 147 of the Act. The assessee is a partnership firm and was managed and control by Shri Jitender Kumar Sapra, managing partner. Shri Jitender Kumar Sapra was confined to bed because of his ill health and later, he died on 22.12.2015. When the assessment was reopened vide notice u/s.148 of the Act dated 27.03.2019, the managing partner Shri Jitender Kumar Sapra had already died. The assessee had declared GP rate of 1.35% for AY 2012-13. The Assessing Officer (AO) held that the assessee has not been able to explain credit entries to the tune of Rs.16,520,00,000/-. Hence, the AO applied GP rate of 1.35% on unexplained credit entries and made addition of Rs.22,27,500/-u/s.68 of the Act for AY 2012-13.

Similarly, the AO made addition by applying GP rate of 1.23% on the unexplained credits for AY 2013-14. Thus, making addition of Rs.9,06,757/- u/s.68 of the Act.

In both impugned assessment years, the addition was made merely on estimations. On the additions so made the AO initiated penalty proceedings u/s.271(1)(c) of the Act for furnishing inaccurate particulars of income and concealment of income. The AO vide order dated 25.03.2022 u/s.271(1)(c) of the Act levied penalty for furnishing inaccurate particulars of income and concealment income for AY 2012-13. Similarly, for AY 2013-14 the AO levied penalty u/s.271(1)(c) of the Act vide order dated 25.03.2022 for furnishing inaccurate particulars of income and concealment of income. The ld. Counsel submits that the penalty u/s.271(1)(c) of the Act in both impugned assessment years has been levied on estimated additions. It is a well settled legal position that penalty u/s.271(1)(c) of the Act cannot be levied on additions made on estimations. The ld. Counsel further contended that there are other multiple legal flaws in levy of penalty. However, at this stage the assessee is confining his submissions only to the ground that penalty u/s.271(1)(c) of the Act cannot be levied on estimations.

Per contra, Shri Om Prakash representing the department vehemently defending the penalty order submitted that the assessee was not been able to explain credit entries in the bank account. Consequently, the AO made additions by applying GP rate declared by the assessee. Penalty was levied by the AO for furnishing inaccurate particulars of income and concealment of income.

Both sides heard, orders of the authorities below examined. From a bare reading of assessment orders for AY 2012-13 and 2013-14, it emerges that addition has been made by the AO by applying GP rate. Thus, the addition has been made purely on estimations. Initiation and levy of penalty u/s.271(1)(c) of the Act is penal in nature. There has to be a positive act of concealment on the part of the assessee or furnishing of inaccurate particulars of income by the assessee. Onus is on the department to prove such act of concealment and furnishing of inaccurate particulars, where, the additions are made merely on estimations, the said onus is not discharge by the department.

In the case of Commissioner of Income-Tax vs. Krishi Tyre Retreading & Rubber Industrie, 360 ITR 580, the Hon’ble Rajasthan High Court held that merely because books of account of assessee were rejected or estimated addition was made, no penalty is leviable u/s. u/s.271(1)(c) of the Act.

In the case of CIT v. Subhash Trading Co., 221 ITR 110, the Hon’ble Gujarat High Court held that after rejecting assessee’s books of account the Assessing Officer assessed income by applying estimated gross profit at the rate 15% on estimated sales. The Tribunal reduced the GP rate to 12%. The Hon’ble High Court upheld the order of Tribunal deleting penalty levied on estimations.

In the case of CIT vs. Sangrur Vanaspati Mills Ltd. (2008) 303 ITR 53, the Hon’ble Punjab & Haryana High Court held that when addition is made on the base of estimation and not on account of any concreate evidence of concealment, penalty u/s.271(1)(c) of the Act is not leviable.

There are catena of judgements by various Hon’ble High Courts holding that penalty u/s.271(1)(c) of the Act cannot be levied where the additions are made on estimations. Various Benches of the Tribunal have also been taking a consistent view in holding that penalty u/s.271(1)(c) of the Act is not sustainable, where the additions are made on estimations.

In light of undisputed facts and various decisions discussed above, we hold that penalty levied u/s.271(1)(c) of the Act in the impugned assessment years is unsustainable for parity of reasons.

In the result, penalty order for AY 2012-13 and 2013-14 are quashed and appeals of the assessee for AY 2012-13 and 2013-14 are allowed.