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2011 (8) TMI 1265 - AT - Income TaxN.P. determination - confirming the action of Assessing Officer in estimating net income from work contract of the assessee @ 10% on gross contract receipts - Held that - We find that the assessee is an Engineering Cooperative Society and engaged in the business of execution of work contracts including retail distribution of LPG and manufacturing of bricks and RCC pole casting. In view of this specific nature of assessee s business and as conceded by the assessee i.e. a fair and reasonable estimate of 6% of net profit of gross contract receipt will meet the ends of justice and we estimate net profit at 6%, in view of facts and circumstances that assessee s outstanding sundry creditors are bogus and books of account rejected are not supported by vouchers. Accordingly, we direct the Assessing Officer to recompute the income by applying 6% of net profit on gross contract receipts. Appeal of the assessee is allowed in part. Penalty u/s 271(1)(c) - In case of estimate of net profit, as is in the given facts and circumstances of the case, penalty u/s. 271(1)(c) cannot be levied and we delete the same. Orders of the lower authorities are reversed and appeal of assessee is allowed.
Issues Involved:
1. Estimation of net income from work contract. 2. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961. Detailed Analysis: 1. Estimation of Net Income from Work Contract: The primary issue in ITA No.2172/Kol/2010 was the confirmation by CIT(A) of the Assessing Officer's action in estimating the net income from the assessee's work contract business at 10% of gross contract receipts. Facts and Arguments: - The assessee, an Engineers' Cooperative Society, declared gross receipts of Rs. 1,40,59,952 and a net profit of Rs. 3,19,261 (2.27% of the gross receipts). - The Assessing Officer (AO) found the net profit low and, upon investigation, determined that the purchases from certain suppliers were not genuine, leading to the rejection of the books of accounts. - Consequently, the AO estimated the income by adding Rs. 16,15,947 to the net profit. CIT(A) Decision: - CIT(A) considered the lack of evidence for purchases and other expenses and estimated the net profit at 10% of gross contract receipts, resulting in an addition of Rs. 10,86,734 instead of Rs. 16,15,947. Tribunal's Decision: - The Tribunal acknowledged the specific nature of the assessee's business and past profit rates ranging from 1.41% to 2.27%. - It was concluded that a reasonable estimate of 6% net profit on gross receipts would be fair. Thus, the AO was directed to recompute the income accordingly. 2. Levy of Penalty under Section 271(1)(c): The only issue in ITA No.2173/Kol/2010 was the confirmation by CIT(A) of the penalty levied by the AO under Section 271(1)(c) of the Income Tax Act. Facts and Arguments: - The AO levied a penalty based on the addition made due to the disallowance of sundry creditors. - The CIT(A) upheld the penalty but on a different premise, estimating the net profit at 10% of gross receipts. Tribunal's Decision: - The Tribunal noted that penalties under Section 271(1)(c) cannot be levied on estimates as there is no element of concealment or furnishing inaccurate particulars of income. - Citing the case of CIT v. Vijay Kumar Jain, it was held that penalties cannot be imposed where the income is estimated, and there is no finding of inaccurate particulars or concealment of income. - Therefore, the Tribunal deleted the penalty, reversing the orders of the lower authorities. Conclusion: - The appeal regarding the estimation of net income (ITA No.2172/K/2010) was partly allowed, directing the AO to apply a 6% net profit rate on gross contract receipts. - The appeal against the penalty (ITA No.2173/K/2010) was allowed, and the penalty under Section 271(1)(c) was deleted.
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