In Arya Hybrids Seeds Ltd v. DCIT, the ITAT, Pune bench held that addition on the basis of estimation cannot be a ground for imposing penalty though the same may be a ground for assessment. It was further observed that penalty under section 271(1)(c) of the Income Tax Act is not leviable on mere ground that the assessee had admitted the addition.
A search conducted under s. 132 of the Act revealed certain unexplained investments of the assessee and assessment proceedings were initiated. During the course of the proceedings, the assessee admitted the addition and consequently, penalty were imposed.
Before the Tribunal, the assessee contended that penalty cannot be levied where the addition in assessment proceedings have been made on estimations. Penalty and assessment proceedings are two distinct and independent proceedings. Every addition in assessment does not necessarily result in levy of penalty.
The bench noted that the assessee has not contested the additions made during the assessment proceedings. “It is a trite law that levy of penalty is not automatic and every addition made during the assessment proceedings need not necessarily result in levy of penalty. The Hon’ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Khoday Eswarsa and Sons reported as 83 ITR 369 has held that the assessment proceedings and penalty proceedings are two independent and separate proceedings.”
Allowing the appeal, the bench observed; “addition on the basis of estimation may be sustainable in assessment proceedings but criterion and yardstick for imposing penalty u/s. 271(1)(c) of the Income Tax Act are different from these applied for making the additions. It is a well settled law that no penalty u/s. 271(1)(c) of the Income Tax Act should be levied where additions are made on estimations. Further, no penalty u/s. 271(1)(c) can be levied merely on the ground that the assessee has agreed for the addition.”
Read the full text of the order below.
