ITAT Deletes Rs.96.62 Lakh Penalty, Rules Section 271(1)(c) Not Applicable on Estimated Additions [Read ORder]

The Income Tax Appellate Tribunal (ITAT) Delhi Bench has deleted a penalty of Rs.96.62 lakh imposed on Delhi-based fabric trader Pawan Kumar Gupta, holding that concealment penalties under Section 271(1)(c) cannot be levied on income additions made purely on estimation basis. The decision came as relief for Gupta, who faced penalties for assessment years 2013-14 and 2014-15 related to his business M/s Garima Trading Co.

The case originated from assessment proceedings where the tax department had estimated Gupta's income at Rs.3.25 crore against his declared income of Rs.12.73 lakh for 2013-14. The additions included Rs.28.04 crore of alleged unexplained cash deposits in Jammu & Kashmir Bank and Rs.1.13 crore of other deposits, with the Assessing Officer imposing the maximum penalty citing concealment. Similar additions were made for 2014-15.

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During appeal, Gupta's representative argued that the ITAT in quantum proceedings had already reduced the additions to estimation-based figures, deleting several disputed amounts. They contended that penalties couldn't apply to such estimated additions lacking concealment evidence, relying on judicial precedents including the Rajasthan High Court's Krishi Tyre case (2013) and Gujarat High Court's Subhash Trading Co ruling (1997).

The department maintained its stance that the penalty was justified, but the tribunal bench comprising S. Rifaur Rahman (Accountant Member) and Sudhir Kumar (Judicial Member) disagreed. The members noted that estimation-based additions inherently involve subjectivity and don't automatically imply concealment or furnishing inaccurate particulars - the twin conditions necessary for Section 271(1)(c) penalties.

In their order, the bench allowed Gupta's appeals for both years, deleting the penalties entirely. They emphasized that penalty provisions require concrete evidence of wrongdoing, not merely higher income estimations. The ruling reaffirms the settled legal position that additions made purely on percentage basis without specific concealment findings cannot attract concealment penalties.

The decision brings closure to the appellant's decade-long tax dispute, though the underlying estimated additions remain unaffected.

The order demonstrates ITAT's consistent approach in distinguishing between substantive tax demands and penal consequences, particularly in cases involving estimation-based assessments common in small business audits.

To Read the full text of the Order CLICK HERE

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