IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No. 666 of 2009 DATE OF DECISION : 25.11.2009 The Commissioner of Income Tax-III, Ludhiana .... APPELLANT Versus M/s Modi Industrial Corporation, Village Barewal, Ludhiana. ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTAL HON'BLE MR. JUSTICE MEHINDER SINGH SULLAR Present: Mr. Rajesh Sethi, Advocate, for the appellant-revenue. SATISH KUMAR MITTAL , J. The revenue has filed this appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as `the Act'), against the order dated 26.3.2009, passed by the Income Tax Appellate Tribunal, Chandigarh Bench `B', Chandigarh (hereinafter referred to as `the ITAT') in ITA No. 1081/Chd/2008, pertaining to the assessment year 2000-01. In the present case, the assessee is running a rice sheller. For the assessment year 2000-01, the assessee filed the income tax return on 25.12.2000, declaring his income as Rs. 31,49,444/-. Vide order dated 26.2.2003, the Assessing Officer completed the assessment under Section 143 (3) of the Act at net taxable income of Rs. 31,53,943/-. Subsequently, vide order dated 30.3.2005, the Commissioner of Income-Tax-III, Ludhiana, ITA No. 666 of 2009 -2- cancelled the assessment, while exercising the powers under Section 263 of the Act, with a direction to the Assessing Officer to re-frame the assessment after affording due and reasonable opportunity of being heard to the assessee. Thereupon, vide order dated 2.3.2006, the fresh assessment was completed at net taxable income of Rs. 92,76,557/-, after making addition of Rs. 57,74,857/- on account of processing of unaccounted rice bran and Rs.3,52,260/- on account of under valuation of closing stock of the rice bran. On second appeal by the assessee, the ITAT vide its order dated 30.3.2007 directed to apply the growth profit rate of 10% and consequently, the income of the assessee was assessed at Rs.51,13,637/-. It is specifically mentioned here that the ITAT had adopted the flat rate of 10% for working out the unaccounted profits. Thus, the assessment was made on estimate basis. In the meanwhile, the penalty proceedings were initiated by the Assessing Officer against the assessee under Section 271 (1) (c) of the Act for furnishing inaccurate particulars of income and ultimately, vide order dated 27.3.2008, penalty of Rs. 11,31,723/- @ 150% was imposed. In the second appeal by the assessee, the ITAT has set aside the said order of penalty, while observing as under :- “... the Tribunal adopted the flat rate of 10% for working out the unaccounted profits. The assessee surrendered Rs. 50 lakhs to cover up suppressed transactions. Now question arises, whether further penalty at the rate of 150% is justified. The obvious reply is `no' because the assessee may not be put to double jeopardy. In this case, it can be seen that though the ITA No. 666 of 2009 -3- Tribunal has also sustained certain addition, but the addition sustained is not on the basis adopted by the Assessing Officer in the assessment order. For this reason also, there is no justification in levy of penalty under Section 271 (1) (c) of the Act as held by the Hon'ble Madhya Pradesh High Court in Addl. CIT Vs. Nihalchand Badrilal (135 ITR 519) (M.P.) and Calcutta High Court in the case of CIT Vs. Anada Bazar Patrika P. Ltd. (116 ITR 416) (Cal.). Even otherwise, when the assessment is made on estimate basis, some error of judgment cannot be ruled out, therefore, penalty should not be imposed. For this proposition, we are fortified by the decision from the Hon'ble Jurisdictional High Court in the cases of Hari Gopal Singh Vs. CIT (258 ITR 85), CIT Vs. Rawail Singh & Company (254 ITR 191), CIT Vs. Dhillon Rice Mills (256 ITR 447) (P&H), CIT Vs. Metal Products of India (150 ITR 714) and Vishwakarma Inds Vs. CIT (135 ITR 652) (P&H) (FB). Reliance can also be placed upon the decision of the Tribunal in Sudesh Khanna Vs. ACIT (2005) 98 TTJ (Ahd) 106. Even while framing the original assessment, the assessee declared total income of Rs. 31,49,444/- which was assessed at Rs. 31,53,943/- and originally there is no finding that the assessee either concealed its income or furnished inaccurate particulars of income. For imposing penalty under section 271 (1) (c), a definite finding about concealment is necessary. However, in the present appeal the addition is based on estimation. As we have discussed earlier, when there is estimation, there is a possibility of human error. Therefore, at least penalty should not be imposed because it may be a good ground for quantum addition but may not be for imposition of penalty as penalty proceedings and quantum proceedings are altogether different.” ITA No. 666 of 2009 -4- Against the said order, the instant appeal has been filed by the revenue, while raising the following substantial questions of law :- (i) Whether on the facts and in the circumstances of the case, the ITAT is justified in deleting the penalty imposed u/s 271 (1) (c) amounting to Rs. 11,31,723/- by holding that the additions are based on the estimation when the same is on the basis of the concrete evidence in the form of documents found during the course of survey operation? (ii) Whether on the facts and in the circumstances of the case, the ITAT is justified in holding that there is a case of double jeopardy in respect of penalty imposed u/s 271 (1) (c) of the Act, considering the fact that the payment of tax and penalty are under the different provisions of the Act? (iii) Whether on the facts and in the circumstances of the case, the ITAT is justified in holding that there was no definite findings of concealment considering the fact that additions made by the Assessing Officer on account of unaccounted investments were confirmed by Appellate Authorities and penalty proceedings u/s 271 (1) (c) of the Act were initiated by the Assessing Officer for furnishing the inaccurate particulars of income during the course of assessment proceedings? Learned counsel for the appellant-revenue argued that in the instant case, the addition was made on the basis of estimate, but it was made on complete evidence based on documents found during the course of survey operation. He further submitted that in the assessment order, a ITA No. 666 of 2009 -5- definite finding with regard to concealment of income was recorded by the Assessing Officer, therefore, the ITAT is not justified in deleting the penalty, which was rightly imposed by the Assessing Officer. After hearing learned counsel for the appellant-revenue and going through the impugned order, we are of the opinion that the learned ITAT has recorded a finding of fact with regard to the addition of income being made on the basis of estimate, which in our opinion does not require any interference. A perusal of the order dated 30.3.2007, passed by the ITAT in the assessment proceedings which has been quoted in extenso in the impugned order, makes it clear that addition of the income was made only on the basis of estimate. Therefore, we do not find that the learned ITAT has recorded a wrong finding in this regard. As far as the finding with regard to concealment of income is concerned, it is clear that in the original assessment order, there was no finding that the assessee has concealed its income and furnished inaccurate particulars of income, but subsequently after the cancellation of the assessment, the Assessing Officer has proceeded on the basis that the assessee, while inflating the electricity charges and under-valuing the closing stock of rice bran, has suppressed the income. Therefore, the additions on account of processing of unaccounted rice bran and under valuation of closing stock of rice bran were made and income was assessed on the estimate base. Therefore, in our opinion, the ITAT is right while coming to the conclusion that when the assessment is made on estimate basis, the penalty should not be imposed. In this regard, ITA No. 666 of 2009 -6- reference can be made to a decision of this Court in Harigopal Singh v. Commissioner of Income-Tax, (2002) 258 ITR 85. In view of the above, we do not find any merit in the instant appeal and in our opinion no substantial question of law arises from the order of the ITAT. Dismissed. ( SATISH KUMAR MITTAL ) JUDGE November 25, 2009 ( MEHINDER SINGH SULLAR ) ndj JUDGE