Case Law Details
Brief Facts:
1. The assessee is engaged in trading of cement. The A.O., during the course of assessment proceedings, valued the closing stock on the basis of last purchase bill, the differential of stock amount between assessee’s and A.O.’s calculation being Rs. 2,40,381/-. The assessee agreed for the aforementioned addition.
2. The A.O., in relation to the said addition, imposed penalty u/s 271(1)(c) of the Income Tax Act, 1961, amounting to Rs. 45,100/- @ 100% of tax sought to be evaded.
3. The Ld. CIT(A) upheld the penalty.
Assessee Contention:
No one appeared before the ITAT Bench for hearing on behalf of the assessee. Thus, the ITAT Bench disposed off the appeal ex parte qua the assessee.
Revenue Contention:
The penalty u/s 271(1)(c) has been imposed on the basis of difference in value of stock shown by assessee and as estimated by A.O. by applying the rate of last purchase bill. Further, the assessee also accepted the addition. Thus, the inaccurate particulars of income had been furnished by the assessee and the penalty so levied is justified.
Court’s Order:
1. There is nothing to show that the assessee has concealed his income or furnished inaccurate particulars of income. There can be several reasons for a different valuation. It is not necessary that all the cement bags are always of good quality. Some of the cement bags may have leaked, spoilt or fixed.
2. Mere fact that the addition has been accepted or is confirmed in quantum proceedings cannot be conclusive of penalty imposition.
3. The Hon’ble Calcutta High Court in case of Durga Kamal Rice Mills Vs. CIT (2004) 265 ITR 25 (Cal.) has held that quantum proceedings are different from penal proceedings. The Hon’ble Kerala High Court in CIT Vs. P.K. Narayanan (1999) 238 ITR 905 (Ker.) has held that despite the addition being confirmed by Tribunal in quantum proceedings, the penalty can still be deleted by the Tribunal, if the facts justify.
4. The addition has been made only on the basis of estimate made by the A.O. It is settled legal position that when income is estimated, then there can be no question of imposing penalty u/s 271(1)(c) of the Act.
5. The Hon’ble Delhi High Court in CIT Vs. Aero Traders Pvt. Ltd. (2010) 322 ITR 316 (Del.) has held that no penalty u/s 271(1)(c) can be imposed when income is determined on estimate basis. The similar view has been taken by:
a) Hon’ble Punjab and Haryana High Court in Harigopal Singh Vs. CIT (2002) 258 ITR 85 (P&H)
b) Hon’ble Gujarat High Court in CIT Vs. Subhash Trading Co. 221 ITR 110 (Guj.)
6. It is apparent that the bedrock of instant penalty is the estimate of valuation of closing stock, the same cannot be sustained. The penalty is thus, ordered to be deleted.
(Analysed by our team member CA Amit Handa)
