2016 (3) TMI 1454 - AT - Income Tax

Penalty u/s 271B - AO estimated the assessee s sales outside books of account - no books of account were maintained by the assessee - AO applying estimated profit rate of 5% on such sales - HELD THAT - Hon ble Gauhati High Court in Suraj Mal Parasuram Todi 1996 (8) TMI 102 - GAUHATI HIGH COURT has held that where no books of account are maintained, penalty should be imposed for non-maintenance of books of account u/s 271A and no penalty can be imposed u/s 271B for violation of section 44AB requiring audit of accounts. Thus Penalty u/s 271B ought not to have been levied because the assessee admittedly did not maintain any books of account as has been recorded in the assessment order itself. We, therefore, order for the deletion of penalty. Penalty u/s 271(1)(c) - estimation of income at 5% on estimated sales - Delhi High Court in CIT vs. Aero Traders P. Ltd. 2010 (1) TMI 32 - DELHI HIGH COURT has upheld the view taken by the Tribunal in deleting penalty u/s 271(1)(c) which was imposed on the basis of addition made by the AO on estimated profit. Thus it is clear that the penalty so confirmed in the instant case cannot be sustained because it was imposed by the AO on the estimate of income made by him. We, therefore, order for the deletion of penalty. Assessee appeal allowed.

Summary

Issues:
Appeals against penalties u/s 271B and section 271(1)(c) of the Income-tax Act, 1961 for Assessment Year 2010-11.

Penalty u/s 271B:
The AO imposed a penalty u/s 271B for not maintaining books of account. The High Courts in Suraj Mal Parasuram Todi vs. CIT and CIT vs. Bisauli Tractors held that penalty for non-maintenance of books should be under section 271A, not 271B. The absence of maintained books of account precludes the imposition of penalty u/s 271B. The Tribunal ordered the deletion of the penalty based on the legal position from the judgments.

Penalty u/s 271(1)(c):
The penalty under section 271(1)(c) was imposed on an addition of Rs.7.50 lac, which was based on an estimated income of 5% on sales. The Tribunal cited judgments like CIT vs. Aero Traders P. Ltd. and CIT vs. Dhillon Rice Mills, where penalties based on estimated profits were deleted. The Tribunal found no other basis for the penalty besides the estimation. Consequently, the penalty under section 271(1)(c) was ordered to be deleted.

In conclusion, both appeals against the penalties u/s 271B and section 271(1)(c) for the Assessment Year 2010-11 were allowed by the Tribunal. The legal basis for the penalties was scrutinized, and in both cases, the penalties were deemed unjustified and subsequently deleted.