Shri Mukesh Harjibhai Patel vs. Acit - (Income Tax Appellate Tribunal) (16 Feb 2022)

Where addition has been made on estimation basis, no penalty under Section 271(1)(c) of IT Act could be made qua such addition

MANU/IB/0049/2022

Direct Taxation

Present appeal is filed by the assessee against order passed by the Learned Commissioner of Income-tax (Appeals) relating to the assessment year 2010-11 against confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (IT Act).

During the assessment proceedings, the assessee himself accepted that, an amount of Rs.4,79,000 from Malhar Dairy firm was an undisclosed income. Further, the assessee's business being in the nature of dairy and vegetable, the assessee would not be knowing that whether income from dairy firm was liable to tax or not. However, during the assessment proceedings, the assessee offered this as undisclosed income which has been confirmed in appeal before the learned CIT(A) and the issue has attained finality.

On examination of the facts on hand, it is apparent that the claim was neither mala fide nor false. It was under bona fide belief that, the income generated out of purchase and sales of dairy products are exempt from the income tax. The assessee in the assessment proceedings disclosed this fact and offered the same to tax. In these circumstances, the assessee fulfilled both the conditions to be outside the purview of Explanation (1) to Section 271(1)(c) of the Act.

In the present case, on account of bogus purchase, the learned CIT(A) has restricted addition to Rs.11,88,357 from Rs.43,53,429 on estimate basis. Such an estimation is made without any concrete material but on adhoc basis. High Court in the case of CIT Vs. Valimkbhai H. Patel has held that where addition has been made on estimation basis, no penalty under section 271(1)(c) could be made qua such addition. Appeal allowed.

Tags : PENALTY CONFIRMATION LEGALITY