2010 (7) TMI 990 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) of the IT Act.
2. Difference in cost of construction as determined by the DVO and shown by the assessee.
3. Rejection of books of account u/s 145(2) of the IT Act.
4. Validity of penalty proceedings initiated by the AO.

Summary:

1. Levy of penalty u/s 271(1)(c) of the IT Act:
The appeals by the assessee challenge the levy of penalty u/s 271(1)(c) of the IT Act for the assessment years 1997-98, 1998-99, and 1999-2000. The ITAT Ahmedabad Bench found that the assessee did not furnish the correct cost actually debited in the books of account and adopted the value on a lump sum basis without filing the account of the project along with required bills and vouchers for payment. The AO imposed penalties for furnishing inaccurate particulars of income and concealment of particulars of income, which were confirmed by the CIT(A).

2. Difference in cost of construction as determined by the DVO and shown by the assessee:
For the assessment years 1997-98, 1998-99, and 1999-2000, significant additions were made due to the difference in the cost of construction shown by the assessee and that determined by the DVO. The ITAT sustained part of the additions on the basis of the DVO's report, which led to the initiation of penalty proceedings.

3. Rejection of books of account u/s 145(2) of the IT Act:
The books of account were held to be defective and rejected by applying the provisions of section 145(2) of the IT Act. The AO noted that the books were not reliable as the correct cost was not debited, and no evidence was filed for labor payment.

4. Validity of penalty proceedings initiated by the AO:
The assessee argued that the penalty was not justified as the additions were made on an estimate basis and there was no material to prove the filing of inaccurate particulars or concealment of income. The AO, however, held that it was a fit case for levy of penalty u/s 271(1)(c) read with Explanation 1 for furnishing inaccurate particulars of income and concealing particulars of income. The ITAT noted that mere revision of income to a higher figure by the AO does not automatically warrant an inference of concealment of income. The report of the DVO based on his opinion against the opinion of the assessee does not lead to an inference of concealment. The ITAT also observed that the AO did not give a clear-cut finding whether the assessee furnished inaccurate particulars of income or concealed particulars of income, thus invalidating the penalty proceedings.

Conclusion:
The ITAT set aside the orders of the authorities below and canceled the penalty, allowing the appeals of the assessee.