2016 (7) TMI 97 - AT - Income Tax

Penalty u/s 271(1)(c) - unaccounted sales - Held that - In the case of assessee, since initiation of assessment proceedings u/s 143(3) r.w.s. 148 of the Act assessee has not challenged nor has been able to disprove the finding of the ld. Assessing Officer about the unaccounted sales at ₹ 10,82,958/- and has only requested for application of GP rather than making the addition to unaccounted sales. Penalty u/s 271(1)(c) of the Act is imposed if an assessee conceals income or furnishes inaccurate particulars of income and both these conditions are being fulfilled by the assessee by way of furnishing inaccurate particulars of sales and also concealing income earned on the unaccounted sales and, therefore, we are of the view that ld. Assessing Officer has rightly imposed the penalty u/s 271(1)(c) of the Act and we do not find any reason to interfere with the order of ld. CIT(A) - Decided against assessee

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Determination of unaccounted sales and corresponding income.
3. Applicability of Section 69 and deemed income provisions.
4. Validity of the penalty imposed based on deemed income and estimates.

Detailed Analysis:

Issue 1: Confirmation of Penalty Under Section 271(1)(c)
The primary issue revolves around the confirmation of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The assessee argued that no default had occurred under this section and sought deletion of the penalty. However, the Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] observed that the assessee had concealed income by furnishing inaccurate particulars, justifying the penalty. The AO noted that the notice under Section 148 was issued based on additional evidence of income escapement found during a survey under Section 133A. The AO concluded that the assessee indulged in unaccounted purchases and sales, leading to the concealment of income.

Issue 2: Determination of Unaccounted Sales and Corresponding Income
The case facts reveal that the assessee, a partnership firm engaged in wholesale cloth dealing and embroidery work, had unaccounted sales amounting to ?10,82,958, which included ?66,685 from loose bills and ?10,16,273 from unaccounted sales. The AO initiated assessment proceedings under Section 143(3) read with Section 148 based on documents found during the survey. The CIT(A) and the Income Tax Appellate Tribunal (ITAT) both upheld the additions, although the ITAT directed the AO to apply a gross profit (GP) rate of 15.42% on the unaccounted sales instead of adding the entire amount.

Issue 3: Applicability of Section 69 and Deemed Income Provisions
The assessee contended that the additions were based on deemed income under Section 69, which pertains to unexplained investments. The assessee argued that penalty under Section 271(1)(c) should not be imposed on deemed income. The written submissions cited various judgments, including those from the Gujarat High Court, which held that additions under Sections 68 and 69 do not automatically justify penalty unless the explanation provided by the assessee is proven false or not bona fide.

Issue 4: Validity of the Penalty Imposed Based on Deemed Income and Estimates
The assessee maintained that the penalty was unjustified as the additions were based on estimates and deemed income. The AO and CIT(A) disagreed, stating that the unaccounted sales were not merely estimates but were substantiated by evidence found during the survey. The CIT(A) emphasized that the assessee had maintained separate sets of books for unaccounted transactions, indicating deliberate concealment of income. The ITAT upheld this view, noting that the assessee had not contested the existence of unaccounted sales but had only disputed the quantum of addition.

Conclusion:
The ITAT concluded that the penalty under Section 271(1)(c) was rightly imposed as the assessee had concealed income and furnished inaccurate particulars. The appeal was dismissed, affirming the penalty of ?74,810 imposed by the AO and confirmed by the CIT(A). The ITAT found no merit in the assessee's arguments regarding deemed income and estimates, given the clear evidence of unaccounted sales and the assessee's acceptance of these sales during the proceedings.

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