ITAT Deletes ₹55,14,076 Penalty for Concealment of Income, Citing Inconsistencies in Income Assessment Estimates [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) deleted the penalty of ₹55,14,076 imposed under Section 271(1)(c) of the Income Tax Act,1961, for concealment of income, citing significant inconsistencies in the income assessment estimates at various appellate stages.

Asian Granito India Ltd.,the appellant-assessee,was engaged in the manufacture and sale of vitrified tiles. A search under Section 132 was conducted on the Asian Group on February 7, 2008. Subsequently, notices under Section 153A were issued, and the appellant-assessee filed its returns of income on June 29, 2009, declaring a total income of ₹14,84,23,270.

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The assessment was completed under Section 153A read with Section 143(3) on December 31, 2009, determining the total income at ₹24,84,23,270 after adding ₹10 crores for alleged undisclosed investments.

The Assessing Officer (AO) based this addition on allegations of excise duty evasion as investigated by the Directorate General of Customs, Excise, and Intelligence (DGCEI). The AO contended that the appellant-assessee suppressed the Maximum Retail Price (MRP) of its sales, leading to cash generation used for various expenses. The AO estimated the undisclosed income at ₹5,08,73,015 by applying a gross profit rate of 31.18% to the alleged suppressed sales.

On appeal, the Commissioner of Income Tax(Appeals)[CIT(A)] deleted the ₹10 crore addition, scaling it down based on a net profit rate of 12.85%. The Tribunal further reduced the addition in a subsequent appeal, estimating net profit at 1% of the turnover reported in the audited accounts. This order was upheld by the Gujarat High Court in a revenue appeal.

Despite the deletions, the AO issued a show cause notice for the imposition of penalties under Section 271(1)(c) for concealment of income. The appellant-assessee contended that the CIT(A) acknowledged the absence of undisclosed investments. However, the AO rejected this argument and imposed a penalty of ₹55,14,076.

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On appeal, the CIT(A) confirmed the penalty, leading to the present appeals. The appellant-assessee argued that the basis of addition changed significantly at each appellate stage, making it unjustifiable to impose a penalty. It was noted that different profit estimates were adopted at various levels, leading to a lack of clear concealment or inaccurate particulars.

The tribunal examined the case and determined that the AO had shifted the basis of addition from Gross Profit to Net Profit concerning the alleged suppressed turnover. It noted that the ITAT had limited the addition to 1% of the turnover as per the audited accounts, and the CIT(A) had previously allowed a quantum addition in favor of the appellant-assessee, which was not challenged by the Revenue.

The bench highlighted that varying estimates had been adopted by different authorities, ultimately leading to the deletion of additions related to undisclosed investments. It ruled that, due to these differing estimates and the income being determined on an estimated basis, penalties for concealment or inaccurate particulars were not applicable.

Citing judicial precedents, including CIT vs. Valimkbhai H. Patel and CIT vs. Subhash Trading Co., the appellate tribunal concluded that penalties could not be imposed when income discrepancies were due to estimation differences.

The two member bench comprising T.R.Senthil Kumar(Judicial Member) and Annapurna Gupta(Accountant Member) deleted the penalty of ₹55,14,076 under Section 271(1)(c) of the Act, allowing the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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