Income Tax - Penalty cannot be levied when additions are made on the basis of ad hoc estimation of profit or guesswork
Bombay High Court Upholds Tribunal Decision: No Penalty for Ad Hoc Income Estimation. Colo Colour Pvt. Ltd. Free from Penalty Under Section 271(1)(c) as Income Tax Additions Were Based on Estimation
News Report: In a significant ruling, the Bombay High Court dismissed an appeal by the Principal Commissioner of Income Tax-6 against Colo Colour Pvt. Ltd., affirming the Income Tax Appellate Tribunal's decision to delete a penalty of Rs. 2,75,000/- levied under Section 271(1)(c) of the Income Tax Act, 1961. The court observed that penalty cannot be imposed when additions are made based on ad hoc estimation without conclusive evidence of concealment or furnishing inaccurate particulars of income.
The case revolved around alleged bogus purchases by Colo Colour Pvt. Ltd., which led to an income addition of Rs. 7,40,776/- based on an estimated 12.5% profit margin. The Assessing Officer had also added Rs. 59,262/- for unexplained commission expenditure on these purchases. However, the High Court noted that these additions were based merely on estimation and not backed by concrete evidence of wrongdoing by the assessee.
The court emphasized the distinction between assessment proceedings and penalty proceedings, highlighting that penalty under Section 271(1)(c) requires clear evidence of intentional concealment or furnishing of inaccurate particulars, which was absent in this case. The court also pointed out that the burden of proof lies with the Assessing Officer to establish such concealment or inaccuracy, which cannot be presumed from estimated additions alone.
This decision reinforces the principle that penalty provisions necessitate strict construction and cannot be levied on mere guesswork. The judgment aligns with precedents where courts have consistently held that penalties cannot be justified on estimations without substantive proof.
Bottom Line:
Penalty under Section 271(1)(c) of the Income Tax Act cannot be levied when additions are made on the basis of ad hoc estimation of profit or guesswork without conclusive evidence of concealment of income or furnishing of inaccurate particulars.
Statutory provision(s): Section 271(1)(c), Section 145(3), Section 260A, Section 143(3), Section 147, Section 148 of the Income Tax Act, 1961
