2015 (5) TMI 819 - AT - Income Tax

Penalty u/s. 271(1)(c) - failure to produce certain primary records exhibiting how much rough diamonds were finally converted into polished diamonds, and how one can establish the quality and size - Held that - stand of the assessee is that it has been maintaining the books of accounts as per the accounting standard notified by the income tax authorities u/s. 145(2) of the Income Tax Act. Assessing Officer has not pointed out any factual error in the details maintained by it. He might have felt handicapness from those details to deduce the result according to his understanding. But the accounts are audited accounts duly complying all the requirements, the addition is an estimated addition on the basis of estimated yield, therefore, there is an inherent difference of opinion between the result shown by the assessee vis-a-vis ultimately determined. In such situation, assesse cannot be held liable for furnishing inaccurate particulars. In our opinion, if the basic details were not maintained by the assessee and its action put the Assessing Officer against the wall leaving no choice except to reject the book result and estimate the income, then, probably this argument may not be available with the assessee that income has been determined on an estimate basis, therefore, no penalty is imposable on it. But in the present case, the Assessing Officer has not brought on record the facts with this angle. It has not been established that even basic records and the books of accounts were not maintained according to the notified standard of accounting. The Assessing Officer did not point out factual inaccuracy in the details submitted by the assessee. - Decided in favour of assesse.

Summary

Issues:
Appeal against deletion of penalty under section 271(1)(c) for furnishing inaccurate particulars of income.

Analysis:
The case involved an appeal by the revenue against the deletion of a penalty imposed under section 271(1)(c) for furnishing inaccurate particulars of income. The Assessing Officer had imposed a penalty of Rs. 14,61,959 on the assessee for failing to maintain proper books of accounts, which led to the inaccurate particulars of income. The Assessing Officer argued that the assessee did not provide essential details related to the manufacturing process of diamonds, making it difficult to ascertain the accurate income. However, the First Appellate Authority deleted the penalty after re-evaluating the facts and submissions. The Authority noted that the addition to income was based on estimation and not due to any specific defect in the books of the assessee. The Tribunal upheld the Authority's decision, emphasizing that no penalty should be levied in cases based on estimation alone.

The legal provisions under section 271(1)(c) were thoroughly examined in the judgment. The section allows for penalties if an assessee conceals income or furnishes inaccurate particulars. The penalty amount can range from 100% to 300% of the tax sought to be evaded. The judgment highlighted the deeming provisions regarding concealment of income, where failure to offer a valid explanation or substantiate it can lead to penalties. The Explanation 1 to the section clarified the scenarios where the deeming fiction for concealment of income would apply, emphasizing the importance of disclosing all material facts related to income computation.

The Tribunal analyzed the factual and legal aspects of the case to determine the validity of the penalty. It was observed that the Assessing Officer penalized the assessee based on the absence of certain primary records, which the assessee argued were not necessary for maintaining accurate accounts as per the prescribed standards. The Tribunal agreed with the assessee, noting that the accounts were audited and compliant with standards. Since the penalty was imposed due to a variance in the estimated income, the Tribunal concluded that no penalty should be levied for furnishing inaccurate particulars. The Tribunal upheld the decision of the First Appellate Authority to delete the penalty, citing the lack of factual inaccuracy in the details provided by the assessee.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the deletion of the penalty under section 271(1)(c) for furnishing inaccurate particulars of income. The judgment emphasized the importance of maintaining accurate records and disclosing material facts while highlighting that penalties should not be imposed solely based on estimations without concrete evidence of inaccurate particulars.