2016 (12) TMI 1794 - AT - Income Tax

Penalty u/s 271(1)(c) - trading additions - addition u/s 68 - HELD THAT - Tribunal in quantum proceedings has confirmed the trading additions by estimating the net Profit @ 10% subject to interest and depreciation holding that once the books of accounts of the assessee are rejected, the AO is required to make an estimation of profits and such estimation though involves some guess work, the AO is not empowered to arrive at unrealistic figure of estimation. Looking at the past history of the assessee where the additions were again sustained on estimation basis @ 8% of N.P rate, N.P rate of 10% was determined. In the context of levy of penalty on such estimated additions, the ld AR has drawn our reference to earlier decision of the Coordinate Bench for AY 2005-06 where penalty was deleted on estimated additions - case of Mahendra Singh Khedia 2012 (3) TMI 568 - RAJASTHAN HIGH COURT also supports the case of the assessee. In light of above, there is no basis for levy of penalty in respect of trading additions which have been sustained on an estimation basis. Additions under section 68, since the entire additions have been deleted in the quantum proceedings by the Coordinate Bench, corresponding levy of penalty cannot be sustained. - Decided in favour of assessee

Summary

Issues:
- Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on trading additions and additions under section 68.

Analysis:

1. Trading Additions Penalty:
- The appellant, a civil contractor, contested the penalty imposed by the AO under section 271(1)(c) based on trading additions made in the assessment order. The AO had rejected the books of accounts and estimated a sum, which was later revised by the ITAT. The appellant argued that penalty cannot be imposed solely on estimates and cited judicial precedents to support the claim.
- The ITAT Jaipur Bench had consistently held that no penalty should be levied on estimated additions, as seen in various cases. The appellant's case was compared to a previous case where penalty was deleted by the ITAT due to similar circumstances. The Tribunal ultimately ruled in favor of the appellant, deleting the penalty on trading additions.

2. Additions under Section 68 Penalty:
- The appellant also challenged the penalty imposed on additions under section 68, which were later deleted by the ITAT in the quantum proceedings. Since the additions themselves were overturned, the corresponding penalty levies under section 271(1)(c) were deemed unsustainable and were consequently deleted entirely.
- The Tribunal considered the arguments presented by both parties and noted that the deletion of the additions under section 68 in the quantum proceedings rendered the penalty unjustifiable. Therefore, the penalty on additions under section 68 was also deleted, in line with the decision on trading additions.

3. Judicial Findings and Precedents:
- The Tribunal referred to past decisions and legal principles regarding the imposition of penalties based on estimates and rejected books of accounts. It emphasized the need for a reasonable estimation of profits and highlighted the importance of not arriving at unrealistic figures. The Tribunal's decision was influenced by previous judgments and the specific circumstances of the case, leading to the deletion of both penalties.

In conclusion, the ITAT Jaipur Bench ruled in favor of the appellant, allowing the appeal and directing the deletion of penalties imposed under section 271(1)(c) for both trading additions and additions under section 68. The decision was based on legal principles, judicial precedents, and the specific facts of the case, ultimately providing relief to the appellant against the penalties levied by the AO.