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2016 (4) TMI 1225 - AT - Income TaxRejection of books - net profit application @4 % on total receipt of transportation charges - Penalty u/s 271(1)(c) - Held that - We find that the similar issue had come up before the Jurisdicitonal High Court in the case of CIT vs. Shivnarayan Jamnalal 1996 (5) TMI 9 - MADHYA PRADESH High Court wherein held that the books of accounts maintained by the assessee were not properly maintained and if assessee has not concealed any material and not tried to defraud the authorities, the penalty cannot be levied, because the income was assessed on estimate basis. In that case, the assessee had nine liquor shops located in several places maintained a single cash book and ledger. The AO held that it was not possible to acquire daily account from all the shops regularly at a particular place and that the sales of all these shops were recorded at a stretch. He, therefore, estimated the sales and net profit, in which the Tribunal has cancelled the penalty and Hon ble High Court has confirmed the order of the Tribunal. We find that in the instant case on hand in the year under consideration the books of accounts were rejected and net profit was applied. Therefore, we are of the view that facts of this case is similar to the facts of the Jurisdictional High Court. Therefore, the penalty cannot be imposed. - Decided in favour of assessee.
Issues Involved:
1. Rejection of books of accounts. 2. Estimation of net profit. 3. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961. Detailed Analysis: 1. Rejection of Books of Accounts: The assessee, a partnership firm engaged in transportation and related activities, filed a return declaring an income of ?40,30,950, which was assessed at ?3,77,22,570. During the assessment, the Assessing Officer (AO) noted specific defects in the books of accounts, such as unsigned payment vouchers and inconsistent labour signatures. Consequently, the AO rejected the books of accounts and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld this rejection. 2. Estimation of Net Profit: Following the rejection of the books, the CIT(A) applied a net profit rate of 4% on the total receipts of ?24 crores, resulting in an addition of ?56,045. The assessee argued that the rejection of books and estimation of net profit did not constitute concealment of income, citing several precedents where penalties were not levied on estimated income. 3. Imposition of Penalty under Section 271(1)(c): The AO imposed a penalty of ?20,00,000 under Section 271(1)(c) for concealment of income. The CIT(A) dismissed the appeal against this penalty. The assessee contended that penalties cannot be imposed merely based on estimated income, referencing multiple judicial decisions supporting this view. Conversely, the Departmental Representative argued that penalties could be justified even on estimated income, citing cases where penalties were upheld under similar circumstances. Tribunal's Findings: The Tribunal reviewed the facts and circumstances, noting that the AO had imposed the penalty due to discrepancies in the labour payment account and the inability of the assessee to produce relevant documentation. However, the Tribunal found that the mere rejection of books and estimation of net profit did not equate to concealment of income or furnishing inaccurate particulars. The Tribunal referenced several judicial precedents, including: - CIT vs. Shiv Narayan Jamnalal: The High Court held that penalties could not be levied if income was assessed on an estimated basis without evidence of fraud or gross neglect. - CIT vs. Whitelene Chemicals: The Tribunal observed that no penalty could be imposed merely because the account books were rejected and profit was estimated. - CIT vs. Sangrur Vanaspati Mills Limited: The High Court ruled that penalties are not applicable when income is assessed on an estimate basis without concrete evidence of concealment. - CIT vs. Aero Traders P. Ltd.: The Tribunal confirmed that penalties could not be imposed on estimated profits after rejecting books of accounts due to discrepancies. The Tribunal concluded that the facts of the case were similar to the aforementioned precedents, where penalties were not justified. Therefore, the Tribunal decided to delete the penalty imposed by the AO. Conclusion: The appeal of the assessee was allowed, and the penalty under Section 271(1)(c) was deleted. The Tribunal's decision was pronounced in the open court on April 5, 2016.
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