2015 (10) TMI 1630 - AT - Income Tax

Penalty u/s 271(1)(c) - income estimated at a higher percentage than what is disclosed by the assessee - assessee offered the income @ 10.75% on the receipt from extra work performed by the assessee in respect of bungalows sold by it but CIT(A) estimated the income @ 25% of the receipt which is upheld by the ITAT - Held that - As decided in Commissioner of Income-tax Versus Whitelene Chemicals 2013 (8) TMI 144 - GUJARAT HIGH COURT merely because account books of assessee were rejected and that profit was estimated on the basis of fair gross profit ratio, no penalty can be imposed. In this case finally the income is assessed by estimating the higher net profit ratio. No additional material has been brought on record by the Revenue that actual income of the assessee was 25% and not 10.75%. The assessee has given the explanation that the extra work is done by the builder as service to the buyer of the bungalows. The extra work is not done with the profit motive and usually, it is done either on no profit or no loss basis or on negligible profit. The assessee has already disclosed reasonable profit which is 10.75%. The explanation of the assessee is plausible and reasonable. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s 271(1)(c) of the Income-tax Act based on the estimation of income from extra work performed by the assessee.

Analysis:

1. Background and Grounds of Appeal:
The appeal filed by the assessee was against the order of the Ld. Commissioner of Income-tax(Appeals)-III, Ahmedabad, concerning the Assessment Year 2007-08. The sole ground raised in the appeal was the penalty of Rs. 16,34,840/- imposed under section 271(1)(c) of the Income-tax Act.

2. Arguments Presented:
The assessee derived income from constructing bungalows and additional work requested by buyers. The dispute arose regarding the estimation of income from such extra work, with the assessee disclosing income at 10.75% while the CIT(A) estimated it at 25% of the receipt. The assessee contended that the extra work was done as a service without a profit motive and had already disclosed a reasonable profit percentage. The Departmental Representative, however, relied on a decision of the Hon'ble Delhi High Court.

3. Judgment and Legal Precedents:
The ITAT considered the arguments and referred to the decision of the Hon'ble Gujarat High Court in the case of Whitelene Chemicals. The High Court's decision emphasized that penalties cannot be imposed solely based on estimation of income without additional evidence. The Tribunal found no additional material to support the Revenue's claim that the actual income should be 25% instead of 10.75%. The Tribunal upheld the assessee's explanation that the extra work was service-oriented without a profit motive. It was concluded that the penalty under section 271(1)(c) was not justified and was therefore cancelled.

4. Final Decision:
The ITAT allowed the assessee's appeal, following the decision of the Hon'ble Gujarat High Court and canceling the penalty under section 271(1)(c). The judgment was pronounced on 19th June 2015 at Ahmedabad.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal precedents considered, and the final decision reached by the ITAT, providing a comprehensive understanding of the case.