2013 (12) TMI 651 - AT - Income Tax

Penalty u/s 271(1)(c) levied on account of low GP rate Held that - Following CIT Ahmedabad vs Reliance Petroproducts Pvt. Ltd 2010 (3) TMI 80 - SUPREME COURT Penalty can be levied only when the explanation given by the assessee is false or malafide Following Dilip Shroff 2007 (5) TMI 198 - SUPREME Court The concept of mensrea was an essential requirement for penalty u/s 271(1)(c) In this case different authorities were having different opinions as well as different estimates of probable G.P. rate for this same year Decided against Revenue.

Summary

Issues:
Appeal against deletion of penalty u/s.271(1)(c) for assessment year 2005-06.

Analysis:
1. Assessment Proceedings and Penalty Imposition:
During assessment proceedings, the Assessing Officer (AO) noted discrepancies in the gross turnover and gross profit declared by the assessee. The AO rejected the book results under section 145 of the Act and estimated the gross profit at 15% of the turnover, adding the difference to the total income. The AO imposed a penalty of Rs.40,90,232, which was 100% of the tax sought to be evaded. The penalty was imposed before the Tribunal decided on the appeal where the G.P. rate was adopted as 8%.

2. Deletion of Penalty by CIT(A):
The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the penalty imposed by the AO. The CIT(A) held that the penalty under section 271(1)(c) is not automatic, especially when a claim appears to be bonafide. The CIT(A) referred to various legal precedents, including the decision of the Hon'ble Supreme Court in CIT Ahmedabad vs. Reliance Petroproducts Pvt. Ltd., emphasizing that penalties cannot be imposed unless the explanation given by the appellant is found to be false or mala-fide. The CIT(A) concluded that in this case, the appellant had not filed inaccurate particulars of income, and the penalty was unjustified.

3. Tribunal's Decision and Confirmation of CIT(A) Order:
The Tribunal considered the submissions of the Departmental Representative (D.R.) and the order of the CIT(A). The Tribunal observed that the penalty was levied based on an estimated gross profit rate of 15%, which was later reduced to 8% by the Tribunal. The Tribunal agreed with the CIT(A) that in cases where additions are made on an estimated basis, penalties should not be levied. Citing a precedent from the Hon'ble Madras High Court, the Tribunal held that penalties cannot be imposed solely based on differences in estimates made by the AO and the assessee. Consequently, the Tribunal confirmed the CIT(A)'s decision to delete the penalty and dismissed the department's appeal.

4. Conclusion:
The Tribunal dismissed the appeal filed by the department, upholding the decision of the CIT(A) to delete the penalty imposed under section 271(1)(c) for the assessment year 2005-06. The Tribunal emphasized that penalties should not be imposed solely on estimated additions and that a bonafide explanation by the appellant cannot lead to penalty imposition unless found false or mala-fide.