2017 (1) TMI 1717 - AT - Income Tax

Application of net profit rate - entire bank deposit managed by the agents - HELD THAT - We direct the AO to apply 0.15% net profit rate on the bank deposits to arrive at the net profit of the assessee. Penalty u/s 271(1)(c) - HELD THAT - In the instant case also income has been assessed on estimated basis merely because a high percentage of income was assessed, the levy of penalty is not automatic as held in the case of Aero Traders Pvt. Ltd. 2010 (1) TMI 32 - DELHI HIGH COURT . Respectfully following the above decision of the Tribunal in the group concerns, we delete the penalty so imposed.

Issues Involved:
1. Application of net profit rate on income from bank deposits.
2. Validity of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Application of Net Profit Rate on Income from Bank Deposits:
The primary issue pertains to the application of a net profit rate of 2% on the income from entire bank deposits managed by the agents, as opposed to the 0.03% profit rate offered by the assessee. The case arose from a search and seizure action under section 132(1) of the Income Tax Act, which revealed that the assessee group companies were involved in laundering black money by providing bogus share trading entries. The Assessing Officer (AO) estimated the commission income at 2%, based on the modus operandi confirmed by the key individuals involved.

The learned Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's application of the 2% commission rate, citing incriminating documents and statements recorded under section 132(4) of the Act. The CIT(A) noted that the commission/profit on transactions varied from 1.5% to 3.6%, and given the lack of reliable primary records and the nature of the transactions, the AO was justified in rejecting the books of accounts under section 145(2) and estimating the income at 2%.

However, the Tribunal, referencing various orders in similar cases, including those of the assessee's group concerns, consistently held that a net profit rate of 0.15% was reasonable. The Tribunal observed that in similar cases, the net profit rate of 0.15% had been accepted, and there was no material difference in the facts of the present case. Consequently, the Tribunal directed the AO to apply a 0.15% net profit rate on the bank deposits to determine the net profit of the assessee.

2. Validity of the Penalty Imposed Under Section 271(1)(c):
The second issue involved the imposition of penalties under section 271(1)(c) for concealment of income or furnishing inaccurate particulars. The learned Authorized Representative (AR) cited multiple Tribunal orders in group concerns where similar penalties were deleted. The Tribunal noted that where income is assessed on an estimated basis, penalties under section 271(1)(c) are not automatically attracted, especially when two views are possible.

The Tribunal referenced several cases, including Mihir Agencies Pvt Ltd and Alpha Chemie Trade Agencies Pvt Ltd, where penalties were deleted because the income was assessed based on estimates. The Tribunal concluded that merely because a higher percentage of income was assessed, the levy of penalty is not automatic. Following the precedent set in similar cases, the Tribunal deleted the penalties imposed under section 271(1)(c).

Conclusion:
The Tribunal allowed the appeals of the assessee, directing the AO to apply a 0.15% net profit rate on the bank deposits and deleting the penalties imposed under section 271(1)(c). The judgment emphasized consistency with prior Tribunal decisions and the principle that penalties should not be imposed on estimated income assessments.

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