Penalty under section 271(1)(c) of the Income-tax Act, 1961 cannot be imposed merely because an addition has been made on an estimate basis.

1. - The Revenue is in appeal under section 260A of the Income-tax Act, 1961, against the order of the Income-tax Appellate Tribunal (for short "the ITAT") dated October 6, 2006, raising the following questions for our consideration :

"(i) Whether, under the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the penalty levied under section 271(1)(c) ?

(ii) Whether, under the facts and in the circumstances of the case and in law, the order of the Tribunal can be sustained when the additions made by the Assessing Officer were upheld by the Tribunal and, therefore, the assessee was falling under the four corners of section 271(1)(c) ?

(iii) Whether the penalty is imposable or not when the additions are made on estimation and the same are sustained at the appellate stage ?"

2. The issue pertains to the penalty imposed by the Assessing Officer on the amount of Rs. 1,00,000, which was sustained as addition, which was confirmed by the Commissioner of Income-tax (Appeals) (for short "the CIT(A)") under section 271(1)(c) of the Income-tax Act, 1961 (for short "the Act of 1961"), for the assessment year 1996-97. The said penalty was, however, deleted by the Income-tax Appellate Tribunal (for short "the ITAT")

3. Brief facts may be observed that the respondent is a registered firm and is engaged in retreading of old (worn out) tyres of all vehicles. Besides the job work, the respondent-assessee was also selling such raw material to local parties. A survey operation came to be carried out at the business premises of the respondent on November 16, 1995, where some documents were found, which, according to the Assessing Officer, was not satisfactorily explained and, accordingly, on account of the said discrepancies, an estimated addition was made of Rs. 1,44,000. The respondent preferred an appeal against the said addition of Rs. 1,44,000, which came to be sustained by the Commissioner of Income-tax (Appeals) and on further challenge before the Income-tax Appellate Tribunal, the Tribunal modified the order passed by the lower authorities and restricted the addition to Rs. 1,00,000 by, inter alia, preferring to the fact that the addition was made on estimate basis by lower authorities and looking to the facts on record and the explanation of the assessee, part relief of Rs. 44,000 was granted, thereby sustaining an addition of Rs. 1,00,000 on estimate basis.

4. In the penalty proceedings, the assessee submitted that it has not concealed the particulars of income, nor has it deliberately furnished inaccurate particulars of such income. It was further submitted by the assessee that the addition has been made on estimate basis and only because of the estimated addition, penalty in law under section 271(1)(c) of the Act cannot be levied but the Assessing Officer was not satisfied and, accordingly, penalty came to be imposed by the Assessing Officer. In first appeal the penalty was sustained, as aforesaid. However, the Tribunal, as aforesaid has deleted the said penalty.

5. Ms. Parinitoo Jain, learned counsel for the appellant-Department, submitted that the Tribunal was unjustified in deleting the penalty as the addition was sustained by the final fact finding authority, i.e., the Tribunal itself, who came to the conclusion that the addition was called for and sustained major addition. She submitted that the Assessing Officer had to make the estimated addition as during the course of survey, the assessee could not offer proper explanation which was based on the discrepancies and addition was made. She further submitted that though the addition has been sustained on estimate basis, but then it cannot be said that there is no concealment. Accordingly, she submitted that the Tribunal erred in deleting the penalty and question of law do arise and requires consideration of this court.

6. Mr. B.B. Ojha, learned counsel for the respondent, submitted that merely because the addition has been sustained, that to