2012 (7) TMI 999 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the order passed by CIT(A).
2. Sustenance of penalty imposed u/s 271(1)(c) of the I.T. Act, 1961.
3. Imposability of penalty u/s 271(1)(c) in respect of specific additions and disallowances.
4. Confirmation of penalty levy on estimated trading addition and disallowances.

Summary:

1. Legality of the Order Passed by CIT(A):
The assessee challenged the order dated 29.09.2010 passed by CIT(A) as "bad in law and bad in facts."

2. Sustenance of Penalty Imposed u/s 271(1)(c) of the I.T. Act, 1961:
The CIT(A) confirmed the penalty imposed by the AO u/s 271(1)(c) for concealing particulars of income and furnishing inaccurate particulars. The penalty was based on the assessee's failure to show commission income properly and discrepancies found during a survey u/s 133A. The AO rejected the books of accounts u/s 145(3) and estimated the turnover and profit, leading to an addition of Rs. 2,22,212/- to the total income. The CIT(A) relied on the judgment in M/s. Dharmendra Textile Processors, 306 ITR 277, to justify the penalty.

3. Imposability of Penalty u/s 271(1)(c) in Respect of Specific Additions and Disallowances:
The assessee argued that the penalty should not be imposed on estimated income and disallowances, citing that the business involved dealing with illiterate farmers and local retailers, making it difficult to maintain proper records. The assessee contended that the penalty was based on estimation and not on actual concealment or furnishing of inaccurate particulars. The assessee relied on the judgment of the Rajasthan High Court in 168 ITR 715 (Raj).

4. Confirmation of Penalty Levy on Estimated Trading Addition and Disallowances:
The Tribunal noted that the penalty u/s 271(1)(c) depends on whether the assessee has concealed particulars of income or furnished inaccurate particulars. The Tribunal distinguished the case from CIT Vs. Handloom Emporium, 282 ITR 431 (All), stating that the present case involved estimation of income after rejecting books of accounts, not specific unrecorded sales. The Tribunal also considered the Supreme Court's judgment in Reliance Petro Products Pvt Ltd 322 ITR 158, which clarified that penalty is not justified for bona fide omissions or wrong claims made without deliberate default.

Conclusion:
The Tribunal concluded that the penalty u/s 271(1)(c) is not leviable in cases of income estimation after rejecting books of accounts. The AO failed to provide specific instances of inaccurate particulars or concealment of income. The Tribunal canceled the penalty of Rs. 1,74,594/- levied by the AO and sustained by the CIT(A), allowing the appeal filed by the assessee.

Result:
The appeal filed by the assessee is allowed.