2018 (4) TMI 880 - AT - Income Tax

Penalty u/s 271(1)(c) - non production of the books of accounts and addition based on the estimate - Held that - In case where the assessee s books are rejected and assessment was made on best judgment after estimating the turnover and the rate of gross profit, it cannot be said that penalty cannot be imposed. In each case of the estimated addition it is required to be examined whether there was material to implicate the assessee for having concealed or furnished inaccurate particulars of income. In fact assessment by estimate is one of the accepted methodology of the taxation. Where the assessee conceals relevant material and evidence, the revenue has no option but to make the best judgment by an estimate. An addition made by estimation is as much legal as any other assessment. In the present case, hence, it cannot be said that merely because the estimate of income penalty cannot be levied. Here, there is no explanation by the assessee that why the books of accounts are not been produced by the assessee Non consideration of the decision of Hon ble Karnataka High Court in CIT Vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT which was cited before the bench but was not considered - Held that - In the present case such decision was cited before us, however inadvertently same was not considered while deciding the penalty appeal of the assessee. In view of this we are of the opinion that not considering the decision of Hon ble Karnataka High Court cited before us, renders the order of the tribunal suffering from mistake apparent from record. I Penalty initiated u/s 271(1)(c) - non specification of charge - Held that - In the present case at the time of framing the assessment order the ld Assessing Officer has recorded a satisfaction that the assessee has furnished inaccurate particulars of income and concealed its income which attracts the provisions of section 271(1)(c) of the Act. while levying the penalty the AO has levied it holding that assessee has furnished inaccurate particulars of income. Therefore, while issuing notice has to come to the conclusion that whether it is a case of concealment of income or is it a case of furnishing of inaccurate particulars . Both the above phrases have different connotation - levy of penalty has to be clear for which penalty is levied, the position is unclear then penalty is not sustainable. In the present case the situation is identical when there was no clear charge that whether the penalty is being initiated for furnishing of inaccurate particulars of income or concealment of income but levied penalty on furnishing of inaccurate particulars of income renders the order of the penalty unsustainable.

Summary

Issues Involved:
1. Non-production of books of account and penalty based on estimated addition.
2. Non-consideration of judicial precedents.
3. Specificity of the penalty charge under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Non-production of Books of Account and Penalty Based on Estimated Addition:
The assessee argued that the penalty should not be confirmed merely because the books of account were not produced during the set-aside proceedings, and that penalties should not be levied on estimated additions. The tribunal rejected this argument, stating that the penalty was confirmed because the assessee failed to substantiate the book results by producing the books of accounts and relevant parties. The tribunal emphasized that the imposition of penalty is justified when the assessee's books are rejected, and the assessment is made on the best judgment after estimating the turnover and gross profit rate. It was concluded that an addition made by estimation is as much legal as any other assessment, and the penalty can be imposed if there is material to implicate the assessee for having concealed or furnished inaccurate particulars of income.

2. Non-consideration of Judicial Precedents:
The assessee contended that the non-consideration of binding judicial precedents constitutes a mistake apparent from the record. The tribunal acknowledged that the decision of the Hon'ble Karnataka High Court in CIT Vs. Manjunatha Cotton and Ginning Factory (359 ITR 565) was cited but not considered. The tribunal noted that the rule of precedent is crucial for legal certainty, and failure to consider a cited decision renders the order erroneous. Consequently, the tribunal recalled the order of the coordinate bench in ITA No. 883/Del/2013 for AY 1998-99, allowing the miscellaneous application.

3. Specificity of the Penalty Charge under Section 271(1)(c):
The tribunal examined whether the penalty proceedings were initiated with a specific charge of either "concealment of income" or "furnishing inaccurate particulars of income." The tribunal referred to the Hon'ble Karnataka High Court's decision, which mandates that the Assessing Officer must clearly specify the charge while issuing the notice. In this case, the Assessing Officer initially recorded satisfaction for both charges but levied the penalty specifically for furnishing inaccurate particulars of income. The tribunal found this approach inconsistent and held that the penalty order was unsustainable due to the lack of a clear and specific charge. Consequently, the penalty levied under section 271(1)(c) was deleted.

Conclusion:
The tribunal allowed the miscellaneous application and the appeal filed by the assessee, concluding that the penalty proceedings were flawed due to the non-specificity of the charge and the non-consideration of binding judicial precedents. The order pronounced on 16/04/2018 reflects the tribunal's decision to rectify the earlier judgment and delete the penalty imposed.