The Commissioner of Income Tax -II, Chandigarh V. Dua & Associates (P) Ltd.

ITA/529/2007

AI Insights

The case involves two appeals by the Commissioner of Income Tax -II, Chandigarh against M/s Dua & Associates (P) Ltd., concerning penalties imposed for the assessment years 1997-98 and 1999-2000. The penalties were levied following the Assessing Officer's findings that the assessee had inflated food costs, leading to suppressed sales. The initial penalties were contested and subsequently deleted by the Commissioner of Income Tax (Appeals) and upheld by the Income Tax Appellate Tribunal, primarily on the basis that the assessments were made on an estimated basis, which does not warrant penalty under Section 271(1)(c) as per established legal precedents.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 691561 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 12-03-2008
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Vs. M. M. Rice Mills, Hari Gopal Singh Vs. Commissioner of Income Tax, Commissioner of Income Tax Vs. Metal Products of India, Commissioner of Income Tax Vs. Dhillon Rice Mills
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: AKSHAY BHAN
• Assessee Lawyers: S K NARWANA
• Keywords: Estimate basis; Hotel industry; Inaccurate particulars of income; Penalty; Food cost
• Section: 143(3); 271(1)(c)

Judgement Text

"In the High Court for the States of Punjab and Haryana at Chandigarh … (i) ITA No.529 of 2007 Date of decision:12.3.2008 The Commissioner of Income Tax -II,Chandigarh Appellant Versus M/s Dua & Associates (P) Ltd. Chandigarh Respondent (ii) ITA No.531of 2007 Date of decision:12.3.2008 The Commissioner of Income Tax -II, Chandigarh Appellant Versus M/s Dua & Associates (P) Ltd. Chandigarh Respondent Coram: Hon’ble Mr.Justice Satish Kumar Mittal Hon'ble Mr.Justice Rakesh Kumar Garg Present: Mr.S.K.Garg Narwana, Advocate for the appellant-Revenue. Mr.Akshay Bhan, Advocate for the respondent. .... Rakesh Kumar Garg,J These two appeals filed by the Revenue are directed against the order dated 25.4.2007 of the Income Tax Appellate Tribunal, Chandigarh Bench-B, Chandigarh passed in ITA No.769/Chandi/2006 and 770/Chandi/206 for the assessment year 1997-98 and 1999-2000 raising common issues and having identical facts, therefore, these are being disposed of by one consolidated order. The common issue involved in both these appeals relate to initiation of penalty levied by the Assessing Officer under Section 271 (1)(c ) of the Income Tax Act amounting to Rs. 1,61,400/- and Rs.2,98,775/- for the assessment year 1997-98 and 1999-2000 respectively. The assessee owns a hotel. During the course of assessment proceedings under Section 143(3), the Assessing Officer found that assessee had inflated the expenses on account of food cost. On the basis of food cost norm in the Hotel Industry and the information gathered from CITCO and Haryana Tourism, the Assessing Officer adopted the food cost at 45 % of the total sales and accordingly, addition on account of suppressed sale was made. Therefore, penalty proceedings under Section 271(1)(c ) for furnishing inaccurate particulars of income were initiated against the assessee. The assessee filed appeal before the Commissioner of Income Tax(Appeals) against the additions who vide order dated 5.3.2001 restricted the addition. The appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) on quantum was dismissed by the Income Tax Appellate Tribunal vide order dated 30.5.2005. Since the assessee had furnished inaccurate particulars of income to the extent of additions sustained by the Commissioner of Income Tax (Appeals)which on appeal was confirmed by the Tribunal, the penalty proceedings were taken up by the Assessing Officer, who vide his order dated 30.12.2005 imposed penalty at the rate of 100 % for the tax sought to be evaded. The Commissioner of Income Tax (Appeals) after considering the submissions of the assessee observed that the Assessing Officer has failed to indicate as to what were the reasons on the basis of which he was prima facie satisfied that penalty proceedings must be initiated and therefore, the penalty order was liable to be cancelled on this ground alone. The Commissioner of Income Tax (Appeals) also observed that the income assessed by the Assessing Officer and the Commissioner of Income Tax(Appeals) were only on estimate basis and therefore, following the law laid down by this Court in Commissioner of Income Tax Vs. M. M. Rice Mills 253 ITR 17, held that in a case where additions have been made on the basis of estimate penalty cannot be imposed. Accordingly, the penalty levied by the Assessing Officer was deleted by the Commissioner of Income Tax (Appeals). Against that order, the Revenue filed appeal before the Tribunal which was also dismissed. We have heard learned counsel for the parties. Before us, the learned counsel for the Revenue has raised the following substantial question of law:- “Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was correct in deleting the penalty u/s 271(1)(c ) by holding that the same was not leviable where the income was assessed on estimate basis, without examining the basis of estimation ? There is a consistent view of this Court in a catena of judgments that penalty under Section 271(1)(c ) cannot be levied in a case where additions have been made on estimation basis. This Court, in Commissioner of Income Tax Vs. M. M. Rice Mills 253 ITR 17, Hari Gopal Singh Vs. Commissioner of Income Tax 258 ITR 85, Commissioner of Income Tax Vs. Metal Products of India 150 ITA 714, Commissioner of Income Tax Vs. Dhillon Rice Mills 256 ITR 447 has reiterated this view. In view of the above settled proposition of law, we find no ground to interfere in the well reasoned judgment of the Tribunal, hence the appeals filed by the Revenue are dismissed. (RAKESH KUMAR GARG) JUDGE March 12,2008 (SATISH KUMAR MITTAL) nk JUDGE "