2017 (1) TMI 108 - AT - Income Tax

Penalty u/s 271(1)(c) - as per revenue assessee has deliberately concealed particulars of his income and furnished inaccurate particulars of his income, which is evident from the fact that the department had unearthed several discrepancies during the course of survey - assessee admitted additional income through revised returns - Held that - The assessee has admitted additional turnover to cover up the deficiencies found during the course of survey. The assessee also filed revised returns in response to notice u/s 148 of the Act, admitting additional turnover disclosed during the course of survey. The assessee has estimated net profit of 17.5% on such additional turnover. Though the A.O. has estimated 60% net profit on additional turnover, the ITAT finally directed the A.O. to estimate net profit of 20% on additional turnover declared by the assessee. Though there is a slightly higher income finally assessed consequent to the findings of the ITAT, it is mainly because of estimation of net profit which cannot be considered as concealment of income, which warrants levy of penalty u/s 271(1)(c) of the Act. We further observed that when assessee surrendered additional income to cover up the deficiencies found during the course of survey and offered additional income by filing revised return in response to notice u/s 148 of the Act, the A.O. was incorrect in levying penalty for concealment of particulars of income and furnishing inaccurate particulars of income. It is not automatic that whatever amount has been offered by the assessee, penalty is to be imposed. Generally, concealment provision cannot be invoked in case of surrender of addition, if surrender is made specifically on condition that no penalty will be levied or if surrender is made with a view to buy peace or to avoid harassment or litigation. In this view of the matter we are of the view that the assessee neither concealed particulars of his income nor furnished inaccurate particulars of income, which warrants levy of penalty u/s 271(1)(c) of the Act. The income finally assessed is merely an estimation of income without reference to any concealment of particulars of income. - Decided in favour of assessee

Issues Involved:
1. Whether the assessee concealed particulars of income or furnished inaccurate particulars of income.
2. Legitimacy of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961.
3. Validity of the estimation of sales turnover and net profit by the Assessing Officer (A.O.).
4. Justification for the penalty levied at 300% of the tax sought to be evaded.
5. Appropriateness of the penalty reduction by the Commissioner of Income Tax (Appeals) [CIT(A)].

Detailed Analysis:

Issue 1: Concealment of Income or Furnishing Inaccurate Particulars
The A.O. held that the assessee had deliberately concealed particulars of income and furnished inaccurate particulars, evidenced by the department's findings during the survey of unaccounted bank accounts, purchases, and suppressed sales turnover. The assessee admitted these discrepancies and agreed to disclose additional income. The A.O. concluded that the assessee had concealed income while filing returns under Section 139(1) of the Act.

Issue 2: Penalty Proceedings Under Section 271(1)(c)
The A.O. initiated penalty proceedings under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars. The assessee contended that the additional income was surrendered voluntarily to cover discrepancies and to buy peace with the department, arguing that this does not constitute concealment. The CIT(A) upheld the penalty but reduced it to 100%, stating that while the assessee did conceal income, the maximum penalty of 300% was not justified.

Issue 3: Estimation of Sales Turnover and Net Profit
The A.O. estimated the sales turnover and net profit based on the findings during the survey. The CIT(A) and subsequently the ITAT reduced the additions made by the A.O., with the ITAT finally directing the A.O. to accept the additional turnover declared by the assessee and estimate a net profit of 20% on such turnover. The ITAT's decision indicated that the final income assessed was based on estimation rather than concrete evidence of concealment.

Issue 4: Justification for 300% Penalty
The A.O. levied a penalty of 300% of the tax sought to be evaded, arguing that the assessee's actions amounted to deliberate concealment. However, the CIT(A) found this excessive, noting that the department must establish the correct income and that the assessee's conduct was not entirely recalcitrant, as he had cooperated by filing revised returns. The CIT(A) directed the penalty to be reduced to 100%.

Issue 5: Penalty Reduction by CIT(A)
The CIT(A) reduced the penalty to 100%, reasoning that while the assessee did conceal income, the circumstances did not warrant the maximum penalty. The ITAT upheld this view, noting that the final income determined was based on estimation and that the assessee had voluntarily disclosed additional income to cover discrepancies found during the survey.

Conclusion:
The ITAT concluded that the assessee neither concealed particulars of income nor furnished inaccurate particulars warranting penalty under Section 271(1)(c). The final income assessed was based on estimation, and the voluntary disclosure of additional income was made to cover survey discrepancies. The ITAT deleted the penalty levied by the A.O. and dismissed the cross objections filed by the assessee as not maintainable. The appeals filed by the assessee were allowed, and those by the revenue were dismissed.

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