2017 (2) TMI 412 - AT - Income Tax

Penalty u/s 271(1)(c) - AO rejected the books of account and applied gross profit @ 25% on the basis of unverifiable purchases - Held that - In case of Shiv Lal Tak Vs CIT (2001 (2) TMI 62 - RAJASTHAN High Court) wherein held that in making computation of total income where the income returned has been rejected by rejecting the trading results, finding some discrepancy in the books of account and substituting the same by an estimated figure, in the strict sense, can neither be said to be addition of any amount in the returned income nor disallowance of any amount as deductions claimed. The word amount of which additions made or deductions disallowed also denotes reference to specific item of amount added or disallowed as deduction in contrast to substitution of altogether a new estimated sum in place of the income returned. It is a case neither of addition or disallowance but a case of substitution. In view thereof, the Hon ble High Court has upheld the decision of the Tribunal for deleting the penalty. In the light of the above decision of the Hon ble Jurisdictional High Court, we hereby direct the Assessing Officer to delete the penalty as in the present case also the Assessing Officer has estimated the profit by rejecting the books of account. - Decided in favour of assessee

Summary

Issues:
1. Penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 based on estimation of profit and unverifiable purchases.

Detailed Analysis:
The appeal filed by the assessee was against the penalty amounting to ?3,31,411/- levied under Section 271(1)(c) of the IT Act, 1961. The Assessing Officer had rejected the books of account and applied a gross profit rate of 25% due to unverifiable purchases, leading to the initiation of penalty proceedings. The counsel for the assessee argued that penalty and quantum proceedings are distinct, emphasizing that penalty cannot be sustained solely on estimation grounds. Citing relevant case laws, the counsel contended that the penalty should be deleted as the addition was based on estimation and not specific instances of concealment or inaccurate particulars of income.

The Senior DR opposed the assessee's submissions, relying on judgments that considered expenditure in the form of bogus purchases as concealment of income, justifying the penalty. The ITAT Jaipur Bench reviewed the contentions of both parties, examined the evidence, and referred to a similar case where unverifiable purchases led to the conclusion of concealment of income. The Bench highlighted that the assessee failed to produce parties for verification, supporting the Assessing Officer's position. The Bench emphasized that the addition was specific and the explanation provided by the assessee was not deemed bonafide, ultimately reversing the decision of the CIT(A) and upholding the penalty.

The ITAT considered the decision of the Hon'ble High Court regarding the computation of total income based on rejected trading results and estimated figures. Relying on the High Court's ruling, the ITAT directed the Assessing Officer to delete the penalty as the profit was estimated by rejecting the books of account. Consequently, the ITAT allowed the appeal of the assessee, leading to the deletion of the penalty levied by the Assessing Officer and confirmed by the CIT(A).

In conclusion, the ITAT's judgment focused on the distinction between penalty and quantum proceedings, emphasizing the need for specific instances of concealment or inaccurate particulars of income to justify a penalty under Section 271(1)(c) of the IT Act, 1961. The decision highlighted the importance of bonafide explanations and specific additions in penalty cases, ultimately leading to the deletion of the penalty in this particular case.