2013 (8) TMI 990 - AT - Income Tax

Levy of penalty under Section 271(1)(c) - Held that - No definite finding of fact or any contrary material has been brought on record to prove that the assessee has filed inaccurate particulars of income. In the absence any detailed discussion any material on record we are of the view that levy of penalty under Section 271(1)(c) of the Act in the facts and circumstances of the case at estimate of income would not be warranted. - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income.
2. Rejection of book results under Section 145 of the Income Tax Act.
3. Estimation of sales and net profit rate by the Assessing Officer (A.O.).
4. Acceptance of income surrender by the assessee to avoid penal consequences.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in both appeals was the levy of penalty under Section 271(1)(c) for allegedly furnishing inaccurate particulars of income. The A.O. had imposed penalties on the grounds that the assessees did not produce certain vouchers for purchases and expenses, leading to an estimation of income. The Tribunal noted that the mere inability to produce supporting documents, leading to an income estimation, does not automatically imply furnishing inaccurate particulars of income. The Tribunal referenced several judicial precedents, including the Hon'ble Chhattisgarh High Court in the case of Commissioner of Income Tax Vs. Vijay Kumar Jain, where it was held that penalty is not justified merely due to an estimation of income based on a higher net profit rate. Similarly, the Hon'ble Delhi High Court in CIT Vs. Aero Traders (P) Ltd. and the Hon'ble Madhya Pradesh High Court in CIT Vs. Suresh Chandra Mittal supported the view that penalty under Section 271(1)(c) is not applicable when income is estimated.

2. Rejection of Book Results under Section 145 of the Income Tax Act:
In both cases, the A.O. proposed to reject the book results under Section 145 due to the non-production of purchase vouchers and expenses. The Tribunal observed that the books of accounts were audited, and purchases were made from the Excise Department, which is under strict regulatory control. This submission was not disputed by the A.O. The Tribunal emphasized that in the liquor business, purchases are always made from the Excise Department, and the business is under its control, negating any doubts about the genuineness of purchases. Therefore, rejecting book results solely based on non-production of certain documents was not justified.

3. Estimation of Sales and Net Profit Rate by the A.O.:
The A.O. proposed to estimate sales and apply a higher net profit rate. In ITA No. 545/Agra/2012, the A.O. proposed estimating sales at Rs. 11.15 crore against the disclosed Rs. 11.44 crore and applying a 3% net profit rate against the disclosed 2.29%. The assessee surrendered Rs. 4,00,000/- for possible income leakages, which the A.O. accepted. Similarly, in ITA No. 547/Agra/2012, the A.O. proposed estimating sales at Rs. 75 crore against the disclosed Rs. 74.87 crore and applying a 3% net profit rate against the disclosed 1.77%. The assessee surrendered Rs. 55,00,000/-, which the A.O. accepted. The Tribunal noted that the A.O.'s proposed estimates were not based on concrete evidence but on assumptions, and the actual acceptance of lower surrender amounts indicated the estimates were not accurate.

4. Acceptance of Income Surrender by the Assessee:
Both assessees surrendered additional income to avoid penal consequences and prosecution. The Tribunal highlighted that the surrender was made for peace and due to non-maintenance of some documents, not as an admission of filing inaccurate particulars of income. The Tribunal referenced judicial precedents, including the Hon'ble Supreme Court in M/s Rajasthan Spinning and Weaving Mills, which held that penalty is not automatic for every default, and the Hon'ble Madras High Court in Commissioner of Income-Tax Vs. K.R. Chinni Krishna Chetty, which emphasized the necessity of a definite finding of concealment for imposing penalty. The Tribunal concluded that the A.O. did not provide any material evidence to prove the assessees filed inaccurate particulars of income, and the penalties were thus unwarranted.

Conclusion:
The Tribunal set aside the orders of the authorities below and canceled the penalties under Section 271(1)(c) of the Income Tax Act in both cases. The appeals of the assessees were allowed, emphasizing that penalties cannot be levied based on income estimation without concrete evidence of concealment or inaccurate particulars.