2016 (7) TMI 1533 - AT - Income Tax

Penalty u/s 271(1)(c) - addition by estimating the GP at 15% - HELD THAT - It is noted that the accounts submitted by the assessee have neither been rejected nor any defects have been pointed out by the AO. The addition was made by the AO purely on the basis of estimate, that too, without any basis, much less, any scientific basis. The assessee accepted the addition and offered to pay the tax with a view to buy peace and to avoid litigation, as is clear from the facts before us. Under these circumstances, it is noted that nothing has been brought on record by the lower authorities to show any concealment of income. The addition made on estimate basis cannot be put into the category of concealed income by any stretch of imagination. AO made the addition because in his opinion, the GP of the assessee was to be estimated at a particular percentage. The opinion of the AO was purely subjective and discretionary and without any concrete basis. Under these circumstances, no penalty can be levied, as per law. In this regard, we find support from the judgement of Hon ble Bombay High Court in the case of CIT vs Upendra V Mithani 2009 (8) TMI 1159 - BOMBAY HIGH COURT . Thus, in view of the aforesaid legal position and facts of the case, we find that penalty in this case is unjustified and the same is directed to be deleted

Summary

Issues:
1. Levy of penalty under section 271(1)(c) for assessment year 2007-08.

Detailed Analysis:
The appeal was filed against the order of the Commissioner of Income Tax-(Appeals) confirming the penalty of ?3,60,200 imposed on the assessee. The main issue in this case was the levy of penalty under section 271(1)(c) for the assessment year 2007-08. The assessing officer noted that the assessee, engaged in the business of 'builder and developer,' was following the percentage completion method of accounting, estimating gross profit on a work-done basis. The AO proposed an estimated gross profit rate of 14% due to inconsistencies in the previous years' results. The assessee did not appeal against the assessment order but offered additional income of ?10.5 lakhs for voluntary tax payment only. However, the AO levied a penalty based on the view that the assessee was following an incorrect accounting system and disclosing lesser income.

The assessee contended before the CIT(A) that they were maintaining one consolidated account for two projects, and the penalty was unjustified as they did not conceal income. Despite the submissions, the CIT(A) upheld the penalty, stating that the disclosure of additional income was prompted by the AO's analysis, not voluntary. The ITAT observed that the AO's addition was based on estimation without concrete basis or defects in the books of accounts. The ITAT highlighted the consistent application of the percentage completion method by the assessee in previous years, where no additions were made. Referring to a Bombay High Court judgment, the ITAT emphasized that penalty cannot be imposed if the facts do not conclusively establish concealed income. Therefore, the ITAT concluded that the penalty was unjustified and ordered its deletion.

In light of the legal position and the facts presented, the ITAT allowed the appeal, directing the deletion of the penalty imposed under section 271(1)(c) for the assessment year 2007-08.