1. The penalty under Section 271(1)(c) at Rs. 1,77,971 sustained by the learned CIT(A) has been questioned by the assessee.
2. In support of the ground, the learned Authorised Representative submitted that at the relevant time assessee was deriving income from running a petrol pump in the name of Pink City Service Centre, Jaipur, as also deriving income from partnership firm, namely, M/s Nathani Carrying Corporation, etc. The assessee was also in receipt of agricultural income. During the course of search, certain valuables and documents were found. Statements of assessee were also recorded under Section 132(4) of the IT Act. The AO in the second round after setting aside orders by the Tribunal computed the claimed agricultural income from other sources. The assessee in its return of income had declared net agricultural income of Rs. 41,670. The AO noted that unexplained capital expenses of Rs. 1,32,366 and revenue expenditure of Rs. 38,608 totalling to Rs. 1,61,574 were incurred by the assessee. Relying on the statement of one Shri Kalyanmal Sharma, the AO alleged that the assessee could not prove earning of agricultural income in absence of evidence. The assessee, however, had explained that from the very seized document, it is evident that the assessee had incurred substantial expenditure in this very year itself on seeds, fertilizer, farm labour, salary and electricity. The statement of Shri Kalyanmal Sharma could not have been believed for the reason that he was not an authorized person. His statements were not signed by any competent or authorized officer of the Department and further that he was not given proper opportunity to cross-examination. The learned CIT(A) has, however, estimated the agricultural income at Rs. 30,000 keeping in view the statements, wherein the existence of sale of Chana and wheat were stated. Thus, as against the gross agricultural receipt of Rs. 2,12,644, the learned CIT(A) has estimated the net income at Rs. 30,000 and the balance of Rs. 1,83,000 was sustained as income from other sources against Rs. 2,03,244 sustained by the AO. He placed reliance on the following decisions: (ii) ITO v. Bhupendra Kumar ITA No. 20/Jp/2004, order dt. 15th Sept., 2004; The learned Authorised Representative submitted that ownership of 52 bighas by the entire family and at least 17 bighas of agricultural land having 4,500 Aru trees thereon were not at all denied by any of the authorities below. Thus, what was required in such a case is a fair estimation of agricultural income at the area on some acceptable material. He submitted further that it is a pure case of estimation of agricultural income which has been reduced by the learned CIT(A) at Rs. 30,000 against the declared agricultural income by the assessee at Rs. 2,12,000 as gross receipts. The AO had estimated the same at Rs. 41,000. Thus, penalty under Section 271(1)(c) cannot be levied on estimate basis. He placed reliance on the following decisions: (i) CIT v. S. Rahamat Khan Birbalkhan Badruddin and Party (1999) 155 CTR (Raj) 269 : (1999) 240 ITR 778 (Raj);Shiv Lal Tak v. CIT (2001) 166 CTR (Raj) 534 : 251 ITR 373 (Raj); (iv) Suresh Kumar, Prop., Khuteta Krishi Yantralaya v. ITO 30 Tax World 287 (Jp).
3. Regarding enhancement of income by Rs. 7,06,020 in the case of M/s Nathani Carrying Corporation by the learned CIT(A), the learned Authorised Representative submitted that the assessee had shown gross receipts of Rs. 35,79,705 from 13 trucks used by him in his proprietory transport business conducted in the name of M/s Nathani Carrying Corporation. Gross profit of Rs. 3,61,392 was shown from the business and net profit was declared at Rs. 13,979 only. Although this income was accepted in the original assessment order by the AO, the learned CIT(A) had however, rejected the same and made enhancement therein.
Before the Tribunal, the orders of the lower authorities were set aside with direction to the AO to make fresh assessment. In the reassessment, the AO has repeated the enhancement made by learned CIT(A) solely relying upon the findings recorded by the learned CIT(A) in his order.
The assessee, with a view to put the long-drawn battle with the Department to an end and to buy peace, did not file any appeal against the said assessment order. Neither the learned CIT(A) in the appellate order nor the AO in the reassessment order has established, as to how the expenses were inflated and how they were utilized for non-business purposes. There is no specific instance given nor any specific event has been brought on record in support. The AO has proceeded mainly on the findings recorded in the appellate order. A bare perusal of reassessment order placed at pp. 86 to 88 of the paper book will make it clear that the AO has done nothing over and above the appellate order, though the Tribunal had already restored the entire assessment to the file of the AO to make a fresh assessment. The learned Authorised Representative submitted further that in any case it was a pure case of estimation of income inasmuch as the receipt has been enhanced and by estimating from Rs. 35,79,705 to Rs. 36,00,000 and the net profit of Rs. 13,979 has been replaced by estimated ad hoc net profit rate of 20 per cent on such receipts and thus addition of Rs. 7,06,020 has been reduced to Rs. 13,979. He referred page No. 88 of the paper book, i.e., reassessment order with the submission that the AO has estimated the net profit. The learned Authorised Representative adopted the same arguments as advanced hereinabove with the citation that penalty cannot be levied on an estimated addition.
4. The learned Authorised Representative submitted further that the AO has also not recorded his satisfaction while passing order for initiation of penalty proceedings under Section 271(1)(c) of the Act.
The recording of satisfaction by the AO in the assessment order while initiating penalty proceedings is mandatory for assumption of a valid jurisdiction to levy penalty of concealment. He further submitted that in the present case there is absolutely nothing to show that due satisfaction was recorded by the AO or by the CIT(A) in the course of assessment/appellate proceedings to the effect that the assessee concealed the income or furnished inaccurate particulars of such income. He placed reliance on the following decisions: (i) Subhash Gupta (Individual) v. Dy. CIT (2003) 78 TTJ (Jp)(TM) 692; (iv) Shri Bhagwant Finance Co. Ltd. v. CIT & Ors. (2005) 196 CTR (Del) 462 ; (2006) 280 LTR 412 (Del).
5. Regarding peak balance of Rs. 1,52,044, the learned Authorised Representative submitted that learned CIT(A) did not deal with the same judiciously. Thus, the lower authorities wore not justified in levying penalty. Regarding disallowance of expenses, he submitted that no penalty on mere disallowance of expenses being debatable in nature can be levied and placed reliance on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Ajaib Singh & Co.
. He further submitted that telescoping of earlier years intangible additions were not considered. The learned CIT(A) though mentioned this contention at p. 3, yet rejected the same alleging that such contention was never under consideration before learned CIT(A) or Tribunal.
6. The learned Departmental Representative, on the other hand, submitted that first appellate order was not in existence after setting aside the same by Tribunal, hence learned Authorised Representative is not correct in alleging that the learned CIT(A) while enhancing the addition had not recorded his satisfaction. Even the AO in the set aside assessment order has recorded about issuance of penalty notice under Section 271(1)(c) separately, which indicates that the AO was satisfied about concealment of income on the part of the assessee and/or furnishing of inaccurate particulars of such income. He placed reliance on the decision of Hon'ble Allahabad High Court in the case of Shyam Biri Works (P) Ltd. v. CAT . The benefit of telescoping was already given to the assessee as directed by the Tribunal, as evident from the contents of p. 3 of the first appellate order. The learned Departmental Representative placed reliance on the following decisions while justifying the first appellate order in question: (iV) CIT v. Md. Warasat Hussain (1988) 67 CTR (Pat) 75 : (1988) 171 ITR 405 (Pat); 7. The learned Authorised Representative, in rejoinder, submitted that it is an established position of law that when on an issue different views have been expressed by different Hon'ble Courts, those favourable to the assessee will prevail upon. He placed reliance on the decision of Hon'ble Supreme Court in this regard in the case of CIT v. Vegetable Products Ltd. .
8. Considering the arguments advanced by the parties, in view of the orders of the lower authorities, material available on record as well as the decisions relied upon by them, we find substance in the contention of the assessee that in a case of estimation of income, penalty under Section 271(1)(c) cannot be levied. Admittedly, in the present case, the additions made on different accounts by the AO have been reduced at appellate stage. As submitted by the learned Authorised Representative, it is now an established proposition of law that penalty under Section 271(1)(c) cannot be levied on estimated income and additions made accordingly. The AO, as evident from the assessment order in question has not recorded his satisfaction in a speaking term about concealment of income and/or furnishing of inaccurate particulars thereof on the part of the assessee which is mandatory in a penal proceedings under Section 271(1)(c) of the Act, while passing an order for initiation of penalty proceedings under Section 271(1)(c) of the Act during the course of assessment proceedings. In absence thereof, we agree with the contention of the learned Authorised Representative that the AO had no jurisdiction to proceed under Section 271(1)(c) of the Act against the assessee. Under these circumstances, we order the AO to delete the penalty under Section 271(1)(c) in question while setting aside the first appellate order.
10. The first appellate order sustaining the penalty under Section 271(1)(c) at Rs. 3,86,166 has been questioned by the assessee. In the present assessment also, similar additions were made and reduced at the appellate stage. Adopting the same arguments, the learned Authorised Representative submitted that facts and circumstances are similar in the present assessment years and additions were made on estimated basis on which penalty under Section 271(1)(c) cannot be levied. The AO has also not recorded his satisfaction about the concealment of income and/or furnishing of inaccurate particulars thereof on the part of the assessee. The penalty is, thus, not sustainable.
11. The learned Departmental Representative has also adopted the same arguments as adopted in the appeal hereinabove.
12. Considering the arguments advanced by the parties, under the similar set of facts and circumstances as narrated in ITA No.229/Jp/2001, we, in view of our order in ITA No. 229/Jp/2001 hereinabove, set aside the first appellate order with direction to the AO to delete the penalty levied under Section 271(1)(c) of the Act sustained by the learned CIT(A).