2013 (11) TMI 200 - AT - Income Tax

Penalty u/s 271(1)(c) - The Assessing Officer had estimated net profit rate at 8% - In an appeal filed by the assessee in the quantum proceedings, the CIT(A) reduced the net profit rate from 8% to 5.18% and the order of CIT(A) was confirmed by Tribunal - The Assessing Officer had imposed penalty with reference to difference in estimated net profit rate sustained resulting into addition in income - Held that - There was no reason to interfere in the order of CIT(A) deleting the penalty imposed u/s 271(1)(c) of the Income-tax Act, 1961 Following Commissioner of Income-Tax Versus Chirag Ingots P. Ltd. 2004 (10) TMI 50 - MADHYA PRADESH High Court - categorical finding was required to be recorded to prove the claim of the assessee as bogus while levying the penalty u/s 271(1)(c) - A categorically finding had also been recorded by the CIT(A) to the effect that despite extensive search operation, nothing incriminating was found/seized either in kind or in coin to substantiate that the income assessed and ultimately sustained on estimations, was, in fact, the concealed income earned by the assessee, since this was not conclusive and independently proved against the assessee on the strength of any evidence - We found that CIT(A) had dealt with various judicial pronouncements to arrive at a conclusion that it was not a fit case for levy of penalty - The detailed finding recorded by the ld.CIT(A) had not been controverted. While deleting the penalty, the ld. CIT(A) had categorically recorded a finding to the effect that no independent evidence was brought on record to prove beyond all shadows of doubt that the impugned sum ultimately sustained on estimations was the assessee s income from undisclosed sources earned during the relevant previous year - As per CIT(A) unless there was a categorical finding of fact based on evidence to be brought on record against the assessee to this effect, the imposition of penalty u/s 271(1)(c) in respect of such addition made, without proving falsity in the explanation submitted and without bringing any evidence against the assessee was not justified Decided against Revenue.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Estimation of net profit rate and its impact on penalty.
3. Requirement of independent evidence to prove concealment of income.
4. Distinction between assessment proceedings and penalty proceedings.
5. Judicial precedents relevant to penalty imposition in cases of income estimation.

Issue-wise Detailed Analysis:

1. Imposition of Penalty Under Section 271(1)(c):
The primary issue revolves around the imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961. The Revenue appealed against the order of the CIT(A) for the assessment years 2004-05 and 2005-06, which deleted the penalties imposed by the Assessing Officer. The penalties were related to the addition of income based on the estimated net profit rate applied to the contract receipts.

2. Estimation of Net Profit Rate and Its Impact on Penalty:
The Assessing Officer estimated the net profit rate at 8%, which was later reduced to 5.18% by the CIT(A) and upheld by the Tribunal. The penalty was imposed concerning the difference in the estimated net profit rate sustained. The CIT(A) observed that the income was determined by estimation due to the non-production of books of account. The CIT(A) concluded that penalty should not be imposed merely because the income was estimated, citing various judicial precedents.

3. Requirement of Independent Evidence to Prove Concealment of Income:
The CIT(A) emphasized that no independent evidence was brought on record to prove beyond doubt that the sustained sum was the assessee's income from undisclosed sources. The CIT(A) referenced several judicial decisions, including CIT v. Dhillon Rice Mills and CIT v. Metal Products of India, to support the view that penalty cannot be levied solely based on income estimation without concrete evidence of concealment.

4. Distinction Between Assessment Proceedings and Penalty Proceedings:
The judgment highlighted that assessment proceedings and penalty proceedings are distinct. Penalty proceedings are quasi-criminal, requiring a higher burden of proof on the Assessing Officer to establish concealment. The CIT(A) noted that the mere addition of income does not automatically justify penalty imposition. The CIT(A) cited decisions such as CIT vs. Chirag Ingots (P) Ltd. and CIT vs. H.M. Lalwani to reinforce this principle.

5. Judicial Precedents Relevant to Penalty Imposition in Cases of Income Estimation:
The CIT(A) and the Tribunal referred to numerous judicial precedents to substantiate their decisions. These included:
- Harigopal Singh v. CIT: Penalty not exigible merely because income was estimated.
- Bansal Brothers v. ACIT: Penalty not leviable when addition made by estimating profit rate.
- CIT v. Dhillon Rice Mills: No penalty if addition based on estimation without evidence of concealment.
- CIT v. Metal Products of India: Penalty not justified without proof of conscious concealment.
- CIT vs. V.S.K. Adi Chetty Suravel Chetty: Discretion of AO in penalty imposition to be exercised judiciously.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalties imposed under Section 271(1)(c). It concluded that the penalties were unsustainable due to the lack of independent evidence proving concealment of income and the reliance on income estimation. The Tribunal emphasized the necessity of a categorical finding of fact and substantial evidence to justify penalty imposition. Consequently, the appeals of the Revenue were dismissed.