2018 (1) TMI 83 - AT - Income Tax

Penalty u/s.271(1)(c) - estimation of net profit - Held that - Assessee is a partnership firm run Sushrusha Hospital. In this year the return was filed showing total income at ₹ 2,70,425/-. The AO on meager discrepancies rejected audited books of accounts and estimated net profit @ 6.1%. Being dissatisfied with the said order, assessee filed an appeal before ld. CIT(A) and ld. CIT(A) reduced net profit @ 3%, further, appeal filed before the ITAT, which also reduced estimation of net profit @ 2% of turnover. While passing the order of the penalty, ld. AO has not considered the relief granted by the ITAT. Thereafter, CIT(A) has also not considered the relief granted by the ITAT. Even though passed appeal order after deciding quantum appeal by ITAT. It is well settled principle that if there is no specific charge of either concealment of income or furnishing inaccurate particulars of income. No penalty u/s.271(1)(c) can be imposed while total income was estimated in view of the decision of ITAT. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of penalty under Section 271(1)(c) of the Income Tax Act.
2. Calculation of penalty amount considering the order of the tribunal in quantum appeal.
3. Consideration of the discrepancy between receipts shown in case papers and 3C Register.

Issue-Wise Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c) of the Income Tax Act:

The primary issue revolves around whether the penalty of ?1,30,000/- under Section 271(1)(c) was justified. The assessee contended that neither concealment nor furnishing of inaccurate particulars of income was proven. The penalty proceedings were initiated due to discrepancies found during a survey under Section 133A, which revealed that the assessee was not maintaining its books of account properly and was not accounting for all receipts. The Assessing Officer (A.O.) found that the net profit declared was too low and identified specific discrepancies in the case register. The A.O. rejected the book results and estimated the profit at 6.1%, leading to additional income and subsequent penalty proceedings. The assessee argued that making an incorrect claim does not amount to furnishing inaccurate particulars unless done with malafide intention, citing the Supreme Court decision in CIT v. Reliance Petroproducts (P.) Ltd. However, the tribunal noted that the penalty was not for disallowance of expenditure but for not recording receipts correctly, indicating concealment of income.

2. Calculation of Penalty Amount Considering the Order of the Tribunal in Quantum Appeal:

The assessee argued that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in not considering the relief granted by the ITAT in the quantum appeal while calculating the penalty amount. Initially, the A.O. made an addition of ?6,99,335/- on account of low net profit, which was later restricted by the CIT(A) to ?2,56,510/-. The ITAT further reduced the estimation of net profit to 2% of turnover. Despite these reductions, the penalty was calculated without considering the relief granted by the ITAT. The tribunal emphasized that penalty under Section 271(1)(c) cannot be imposed when the total income is estimated differently at various levels, indicating that the penalty calculation was flawed.

3. Consideration of the Discrepancy Between Receipts Shown in Case Papers and 3C Register:

The tribunal examined the specific discrepancies between the amounts received as per case papers and those shown in the 3C register. For instance, amounts received from patients like Ismail Vora and others were either not recorded or partially recorded in the 3C register. The A.O. noticed that the assessee could produce patients' case papers only up to December 2002, leading to the rejection of the book results and estimation of profit. The tribunal found that the assessee failed to account for the receipts correctly, which was a clear indication of furnishing inaccurate particulars of income. However, the tribunal also noted that the penalty was levied based on estimated income, which varied at different appellate levels, reinforcing that penalty under Section 271(1)(c) should not be imposed in such cases.

Conclusion:

The tribunal concluded that the penalty under Section 271(1)(c) was not justified as the income was estimated differently at various levels, and there was no specific charge of either concealment of income or furnishing inaccurate particulars of income. Consequently, the penalty was directed to be deleted, and the appeal filed by the assessee was allowed. This order was pronounced in open court on 27/12/2017.