2014 (4) TMI 1171 - AT - Income Tax

Penalty u/s 271(1)(c) - incomes estimated from the residential projects under progress on the ground that the assessee has failed to follow the consistent method of accounting - Held that - From the records it is established that though the assessee had estimated the income from the projects under progress in losses. However the AO estimated the same @ 20% which was further confirmed by the ld. CIT(A). The assessee went in appeal and the ITAT directed for estimation of the income @5% of the recoveries. The assessee accordingly filed revised computation of income and assessed the same @ 5% of the recoveries as per direction of the ITAT. It was a pure case of estimation of income and not a case of concealment of income or filing of inaccurate particulars of income. The ld. CIT(A) thus rightly deleted the penalty in relation to above noted assessment years. We do not find any infirmity in the order of the ld. CIT(A) and the same is hereby upheld accordingly. - Decided against revenue

Summary

Issues:
1. Deletion of penalty under section 271(1)(c) of the Income Tax Act for assessment years 2002-03 and 2003-04.

Analysis:
The appeals were filed by the Revenue against the Commissioner of Income Tax (Appeals) order regarding the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment years 2002-03 and 2003-04. The Revenue challenged the deletion of penalties amounting to &8377; 20,41,627/- and &8377; 10,71,601/- for the respective years, arguing that the assessee failed to follow a consistent method of accounting for incomes estimated from residential projects under progress.

The assessee, a partnership firm engaged in construction and sale of flats, declared losses for the relevant assessment years. The Assessing Officer estimated profits from various projects differently, resulting in significant additions to the declared losses. The CIT(A) upheld the AO's orders, leading the assessee to appeal to the ITAT. Subsequently, after a search action and ITAT's decision to estimate profits at 5% of recoveries, the assessee revised the income computations accordingly.

During penalty proceedings, the AO contended that penalties under section 271(1)(c) should be levied as the assessee allegedly did not disclose true income. However, the assessee argued that the ITAT's decision came after the filing of returns and revised computations were submitted based on ITAT's directions. The CIT(A) deleted the penalties, stating it was a case of income estimation following ITAT's guidance, not concealment or inaccurate reporting of income.

The ITAT upheld the CIT(A)'s decision, emphasizing that the assessee revised income computations in line with ITAT's directions, indicating a case of income estimation rather than deliberate concealment. The ITAT found no fault in the CIT(A)'s order and dismissed the Revenue's appeals, affirming the deletion of penalties for the relevant assessment years.