2016 (11) TMI 884 - AT - Income Tax

Penalty u/s 271(1)(c) - g.p. estimation - Held that - There is no concrete evidence of concealment of income or furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act and the addition was made based on estimating Gross Profit by rejecting books of accounts hence no penalty is attracted. Thus we reverse the orders of the authorities below and delete the penalty levied under section 271(1)(c) of the Act on estimated addition.- Decided in favour of assessee

Issues Involved:
1. Sustaining the penalty levied under section 271(1)(c) of the Income Tax Act.
2. Rejection of the books of accounts by the Assessing Officer.
3. Estimation of gross profit by the Assessing Officer.
4. Validity of the penalty proceedings initiated by the Assessing Officer.
5. Reliance on precedents regarding penalty imposition on estimated income.

Issue-Wise Detailed Analysis:

1. Sustaining the Penalty Levied under Section 271(1)(c) of the Income Tax Act:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-25, Mumbai, which sustained the penalty levied under section 271(1)(c) of the Act. The penalty was imposed on the addition made by estimating the gross profit in respect of the assessee's textile and iron and steel business. The CIT(A) upheld the penalty, asserting that the assessee had resorted to unfair means and submitted inaccurate particulars of income, thereby concealing the income.

2. Rejection of the Books of Accounts by the Assessing Officer:
The Assessing Officer rejected the books of accounts of the assessee, citing various discrepancies such as very low gross profit, non-genuine sales and purchases, lack of proper stock records, and unserved notices to purchasers. The AO concluded that the books were unreliable and estimated the gross profit at 10% for iron and steel business and 20% for the textile business. The CIT(A) and the Tribunal sustained the rejection of the books of accounts due to these discrepancies.

3. Estimation of Gross Profit by the Assessing Officer:
The AO estimated the gross profit based on the rejection of the books of accounts. The Tribunal, while upholding the rejection of the books, reduced the gross profit rate by 5% for both businesses, indicating that the original estimation was on the higher side. The penalty proceedings were based on this estimated addition.

4. Validity of the Penalty Proceedings Initiated by the Assessing Officer:
The assessee contended that the penalty was unjustified as the addition was made on an estimation basis without concrete evidence of concealment or inaccurate particulars. The AO, however, held that the survey conducted revealed incriminating evidence, leading to the conclusion that the assessee had concealed income or furnished inaccurate particulars. The CIT(A) sustained the penalty, relying on the Supreme Court's decision in Union of India vs. Dharmendra Textile Processors.

5. Reliance on Precedents Regarding Penalty Imposition on Estimated Income:
The assessee's counsel argued that penalty should not be imposed when income is estimated, citing various precedents:
- CIT(A) vs. Metal Products of India: Merely because the addition was made on estimate did not automatically lead to the conclusion of fraud or willful neglect.
- Harigopal Singh vs. CIT: No penalty under section 271(1)(c) can be imposed when the assessment is made on an estimate basis.
- CIT vs. Nawab and Bros.: The mere rejection of books and estimation of income does not imply fraud or willful neglect.
- CIT vs. Sangrur Vanaspati Mills Ltd.: When additions are made based on estimates without concrete evidence of concealment, penalty is not leviable.

Conclusion:
The Tribunal concluded that there was no concrete evidence of concealment of income or furnishing of inaccurate particulars. The books were rejected due to discrepancies, and the addition was made based on estimated gross profit. The Tribunal held that mere estimation does not lead to penalty under section 271(1)(c). Consequently, the penalty levied was deleted, and the appeal of the assessee was allowed.

Final Order:
The appeal of the assessee is allowed, and the penalty levied under section 271(1)(c) of the Act on the estimated addition is deleted. The order was pronounced in the open court on 07.11.2016.

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