Rajendra Bhausaheb Deshmukh, Bokardhan V. Income-Tax Officer, Ward -1, Jalna

ITA 918/PUN/2022

AI Insights

The case involves an appeal by Rajendra Bahusaheb Deshmukh against the penalty imposed by the Income Tax Officer, Ward-1, Jalna, which was confirmed by the Commissioner of Income Tax (Appeals), Delhi. The penalty of Rs.2,66,820 was levied under section 270A of the Income Tax Act, 1961, for the assessment year 2017-18, on the grounds of underreported income. The Tribunal examined whether the penalty was justifiably imposed, considering that the additions to income were made on an estimated basis by the AO, without verifying the stock register as mandated by the Excise Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134350 (ITAT-PUNE)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 15-12-2022
• Other Referred Cases: Laxman Trimbak Gule Vs CIT, CIT vs. Aero Traders Pvt. Ltd., CIT Vs. Subhash Trading Co., Harigopal Singh Vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation
• Section: 271(1)(c); 11

Judgement Text

आयकर अपीलीय अिधकरण “बी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.918/PUN/2022 िनधाᭅरण वषᭅ / Assessment Year : 2017-18 Rajendra Bahusaheb Deshmukh, 10, Silod Road, Bhokardhan – 431504. Maharashtra. PAN: AHHPD6474 D V s The Income Tax Officer, Ward-1, Jalna. Appellant/ Assessee Respondent /Revenue Assessee by None. Revenue by Shri M.G.Jasnani – DR Date of hearing 10/02/2023 Date of pronouncement 29/03/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals)[NFAC], Delhi, dated 17.11.2022 emanating from assessment order dated 11.10.2021 under section 270A of the I.T.Act, 1961 for the A.Y.2017-18. The Assessee has raised the following grounds of appeal: “1. On the facts and circumstances previeling in the case, the National faceless Appeals Centre, Delhi has erred in confirming the penalty levied by the AO without consideration of the legal status of the penalty order, which is not legally sustainable, hence, the order ITA No.918/PUN/2022 Rajendra Bahusaheb Deshmukh [A] 2 passed by the NFAC, delhi confirming the penalty levied by the AO of Rs.2,66,820/-. It is requested that the penalty order may kindly be deleted. 2. The assessee craves right to add, alter, amend, modify, delete the grounds of appeal and right to make detailed submissions, clarifications and explanation on the grounds of appeals at the time of hearing. “ 2. None appeared for the assessee. The Ld.DR relied on the order of the Assessing Officer(AO) and Ld.CIT(A). The only issue for our consideration is Penalty u/s.270A of the Act. Findings and Analysis: 3. In this case the AO has levied Penalty u/s.270A of the Act. Aggrieved by the Penalty order the Assessee filed appeal before the Ld.Commissioner of Income Tax(Appeal). The relevant paragraph of Ld.CIT(A)’s order is reproduced as under : 1. Ground No: 01- Penalty levied u/s 270A r.w.s 270A(6) of the IT act at Rs.2,66,820/- which is 200% of the difference: -  In this regard it is to bring your kind notice that the liquor commodity is controlled by the central excise department under the provision of section 3A and 11 AC of the Central Excise Act vide rule 96ZQ(5) of the Central excise rules.  However, the Id. AO has estimated the additional profit at 10%o and in view of the provisions of section 270A (6) (c) the penalty is not leviable u/s 270A of the IT Act.  Without prejudice to the above and presuming but not accepting that if the penalty is leviable that should ITA No.918/PUN/2022 Rajendra Bahusaheb Deshmukh [A] 3 have been levied at 50% of the difference of tax.  Therefore, it is prayed that the addition being made on estimation basis no penalty is leviable u/s 270A, which may kindly be deleted. 4.3 I have considered the matter. In the assessment order, the AO stated that assessee had shown closing stock of liquor at Rs.10,32,565/-. The G.P. rate was found to be very low. When assessee filed separate trading account for business of Cement and Wine. The closing stock of liquor was found to be Rs.16,22,518/- as against Rs.10,32,565/-. Due to this glaring discrepancy, the AO had estimated the G.P. at 10% of liquor business turnover. Even in case of food sale, assessee had shown sale of Rs.2,90,974/- without any corresponding purchases. Profit was estimated on account of food sale at 20% of sale.” 4. The ld.CIT(A) has given a categorical findings that the AO had estimated Gross Profit at 10% for Liquor Business and 20% on account of Sale of food. Thus there is no denial that the additions have been made on estimated basis. The AO had not bothered to verify the Stock Register maintained by the assessee for his Liquor Business which is mandatory as per the Excise Act and the Excise Inspectors visits the shop to verify the stock. Thus, the AO without bothering to verify the stock register estimated the GP. In these facts and circumstances we are of the opinion that AO has failed to establish underreporting. 5. The ITAT Pune bench in the case of Laxman Trimbak Gule Vs CIT ITA No. 348/PUN/2018 has held as under : Quote, “ We have heard the rival contentions and perused the materials available on record. We have also considered the judicial ITA No.918/PUN/2022 Rajendra Bahusaheb Deshmukh [A] 4 pronouncements placed before us. In the present case, the Assessing Officer estimated the disallowance at 50% being Rs.9,90,685/- and initiated penalty proceedings u/s.274 r.w.s 271(1)(c) of the Act. It is a basic need of the provisions of law that definite finding is required to be recorded by the Assessing 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 u/s.271(1)(c) of the Act. We find that the Ld.CIT(Appeals) relying on the written submission filed by the assessee adjudicated the claim of commission and also improvement expenditure but failed to make specific enquiry regarding the same and came to a conclusion based on only materials on record. We find that the disallowance upheld by the Ld.CIT(Appeals) is merely on estimate basis without any categorical statement of facts whether there is „concealment of income‟ or „furnishing of inaccurate particulars of income‟. More so, when the disallowances have been enforced by the Ld. CIT(Appeals) on estimation basis, in such scenario, the settled legal position is that no penalty u/s.271(1)(c) of the Act cannot be imposed. We find strength from the following decisions of the Hon‟ble High Courts: i) CIT vs. Aero Traders Pvt. Ltd., 322 ITR 316 (Del) ii) CIT Vs. Subhash Trading Co., 221 ITR 110 (Guj.) iii) Harigopal Singh Vs. CIT, 258 ITR 85 (P & H)” ITA No.918/PUN/2022 Rajendra Bahusaheb Deshmukh [A] 5 6. We find that the Hon’ble Delhi High Court in CIT vs. Aero Traders Pvt. Ltd.(supra.) has held that no penalty u/s.271(1)(c) of the Act can be imposed when income is determined on estimate basis. The relevant portion of the judgment reads as follows: “5. Against this order, the assessee filed an appeal before the CIT(A), who deleted the penalty imposed vide order dt. 7th September, 2007, holding that the addition made by the AO on the basis of estimated profit cannot be a subject-matter of penalty for concealment of income. The ld.CIT(A) further found that penalty was not imposable in view of the substantial deduction given by the Tribunal and observed as under : "I have considered the submissions of the assessee and perused the facts that are ruling in the instant case. There is no doubt that there are certain discrepancies noticed in the course of special audit as brought out in their report. However, such discrepancies by itself ipso facto lead to the conclusion that the assessee has concealed the income. Ultimately the AO has to resort to estimated addition only. He could not point out any specific item of any addition with any conclusive evidence. Even the addition made by the AO on estimated basis is substantially reduced by the CIT(A) after considering the various facts and figures and circumstances of the case. The said action of the CIT(A) has become final consequent to the decision of the Hon’ble Tribunal in dismissing the Departmental appeal. Resultantly the income of Rs.1,02,980/- is on the basis of estimated profit rate only. It is not on account of any specific item of addition or disallowance. Such an addition made on the basis of guess work cannot be subjected matter of penalty for ITA No.918/PUN/2022 Rajendra Bahusaheb Deshmukh [A] 6 concealment of income. Penalty being a quasi criminal proceeding there is a duty cast on the AO to establish the guilt of the assessee in concealing the income or furnishing of inaccurate particulars of such income. As stated the seizure of the books of the police is not an act of the assessee. No motives can be attributed to the non- availability of books of accounts to examine and verify the various claims made by the appellant." 6. Aggrieved by this order, the Revenue filed an appeal before the Tribunal. The Tribunal, after hearing the submissions made on behalf of the Revenue, came to the conclusion that the CIT(A) had taken the correct decision in deleting the penalty. The operative portion of the impugned order dt. 4th Dec., 2008 is as follows : "As the facts emerge the substantial quantum relief was given by the CIT(A) which has been confirmed by the Tribunal, the balance pertains to estimated rate of profit applied on the turnover of the assessee which in our view does not amount to concealment or furnishing inaccurate particulars. In our view, the CIT(A) has taken right decision in deleting the penalty which is upheld. 7. The appeal is filed against the above-mentioned order of the Tribunal dt. 4th Dec., 2008. The finding arrived at by the Tribunal does not warrant interference from this Court as it is purely a finding of fact. No perversity has been pointed in such a finding. Consequently, no substantial question of law arises for consideration. As a result, the appeal is dismissed." 9.1. The Hon‟ble Gujarat High Court in the case of CIT vs. Subhash Trading Company (Guj) on the same issue has held as follows: “Where income is assessed on estimate basis after rejecting book results, penalty under s. 271(1)(c) cannot be ITA No.918/PUN/2022 Rajendra Bahusaheb Deshmukh [A] 7 imposed by mere application of Explanation thereof in the absence of any evidence to conclude a positive finding that there was concealment of income.” 9.2 Similar view has been taken by the Hon’ble Punjab & Haryana High Court in the case of Harigopal Singh vs. CIT (supra) by observing as follows: “Provisions of s. 271(1)(c) are not attracted to cases where income of an assessee is assessed on estimate basis and additions are made therein on that basis.” In view of the foregoing precedents of the Hon’ble Courts, it is apparent that when the bedrock of instant penalty is on the estimated addition, the same cannot be sustained” Unquote. 7. In these facts and circumstances, we are of the opinion that Assessing Officer has failed to establish underreporting. Section 270A of the Act provides for imposition of penalty for under- reporting and misreporting of income. Sub-section (2) enlists certain circumstances of under-reporting of income. Sub-section (3) deals with the determination of under-reported income, which, in our context, is by reducing the income returned by the assessee from the amount of income finally assessed. Sub-section (6) is relevant for our purpose which states that under-reported income for the purpose of this section shall not include certain items. Clause (b) of subsection (6) refers to: "the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer ....". It is ostensible from the ITA No.918/PUN/2022 Rajendra Bahusaheb Deshmukh [A] 8 language of sub-section (6) that an addition made on the basis of estimation cannot provide foundation for under-reported income for the purpose of imposition of penalty u/s 270A of the Act. In the case under consideration, the addition is based on GP estimation. In the case under consideration, the addition is based on GP estimation. Hence, we hold that the penalty levied u/s.270A is not maintainable. Hence, AO is directed to delete the Penalty levied u/s.270A of the Act. 8. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 29 th March, 2023. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 29 th Mar, 2023/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “बी” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.