2016 (10) TMI 690 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - cash expenditure incurred - estimation of the profit rate -Held that - Lower authorities have not made any addition on the basis of these cash expenditure but estimated the profit rate on gross receipts as the assessee is engaged in the business of the construction activity, i.e., the Civil Contractor. Even the Tribunal has accepted the estimation of income and reduced the profit rate from 25% to 23%. The observations of Tribunal in quantum appeal is reproduced in above para 5 of this order. In all, now the issue arises whether the estimate on penalty can be levied because assessment is finally made on estimating the profit rate. The lower authorities has initiated the penalty for the reason that the assessee has incurred cash expenditure and for this, evidences were found during the search proceedings on Chartered Accountant firm of the assessee. We also find that the profit rate applied on cost of sale as per the working of sale adopted by the Department can at the best be the basis for quantum addition but it cannot attract penalty for furnishing of inaccurate particulars of income because the assessment is made not on the issue of unaccounted cash expenditure but on estimate of profit rate. Accordingly, in our view, as per rule of evidence there is distinction between set of facts not proved and facts disproved and facts proved. Here we have to give benefit to the assessee because there is a doubt for the reason that mere non-satisfactory explanation furnished by the assessee cannot amount proof of falsity of explanation furnished. Accordingly, we are of the view that the lower authorities have erred in levying penalty for furnishing of inaccurate particulars of income on income estimated after applying profit rate. We delete the penalty and allow the appeal of the assessee.

Summary

Issues:
- Confirmation of penalties under section 271(1)(c) of the Income Tax Act on estimate basis.
- Justification for penalty imposition based on unaccounted cash expenditure.
- Assessment of penalties in relation to undisclosed income.

Analysis:
1. Confirmation of Penalties under Section 271(1)(c):
The appeals by the assessee were against the orders of the Commissioner of Income Tax (Appeals) confirming the levies of penalties under section 271(1)(c) of the Income Tax Act on additions made by the Assessing Officer on an estimate basis. The penalties were imposed for furnishing inaccurate particulars of income. The issue was common for both assessment years, and the Tribunal decided to address it starting from the assessment year 2006-07.

2. Justification for Penalty Imposition based on Unaccounted Cash Expenditure:
The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act due to unaccounted cash expenditure discovered during a search and seizure action. The Assessing Officer levied penalties for furnishing inaccurate particulars of income, resulting in penalties in both the assessment years. The Commissioner of Income Tax (Appeals) upheld the penalties, emphasizing that the search action revealed cash expenditure not accounted for in the regular books of accounts. The Commissioner concluded that penalties were justified to compensate for the loss of revenue, without requiring proof of deliberate intention to conceal income.

3. Assessment of Penalties in Relation to Undisclosed Income:
The Tribunal analyzed the facts and circumstances of the case, focusing on the estimation of income based on profit rates and formulas adopted by the lower authorities. The Tribunal noted that while the authorities acknowledged cash expenditures, the final assessment was based on estimating profit rates rather than directly on unaccounted cash expenditure. The Tribunal emphasized the distinction between facts not proved and disproved, highlighting the need for concrete evidence to justify penalty imposition. Ultimately, the Tribunal ruled in favor of the assessee, concluding that penalties for furnishing inaccurate particulars of income could not be levied solely based on income estimation. Consequently, the penalties imposed by the lower authorities were deleted for both assessment years.

In conclusion, the Tribunal allowed the appeals of the assessee, emphasizing the importance of concrete evidence and the distinction between estimation and direct proof in penalty imposition under section 271(1)(c) of the Income Tax Act.