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2018 (7) TMI 69 - AT - Income TaxPenalty u/s 271(1)(c) - rejection of books u/s. 145(3) of the Act and applied the GP rate of 4% - Held that - Mere basis for penalty by AO is on the basis of his estimation of GP rate of the assessee and AO has rejected the books of accounts of the assessee without pointing out any particular defect in the same and the CIT(A) and ITAT have also confirmed the part of the addition merely on an estimate basis. GP rate has been estimated and no defect has been pointed out by the AO in the books of accounts of the assessee which could lead to the fact that particulars of income have not been disclosed by the assessee. It is a settled law that in case where the income has been estimated by applying a flat estimated rate of profit, and no other specific defects have been established which lead to concealment or furnishing of inaccurate particulars of income, no allegation could be made out against the assessee, making the conduct of assessee punishable with penalty. Case of CIT vs. Metal Products of India 1984 (1) TMI 36 - PUNJAB AND HARYANA HIGH COURT wherein it has been observed that the addition if made on estimation under the proviso of Section 145(1) of the Act by adopting the view that GP shown in the books of accounts was too low, does not automatically lead to the invocation of penalty. - Decided in favour of assessee.
Issues Involved:
1. Legality of the penalty under section 271(1)(c) of the Income Tax Act. 2. Validity of the penalty amounting to ?3,75,300/-. 3. Allegations of concealment or furnishing of inaccurate particulars. 4. Penalty on income assessed on an estimate basis. 5. Penalty despite relief from ITAT. 6. Penalty on debatable and controversial issues. 7. Independence of penalty proceedings from assessment proceedings. 8. Lack of findings on merits regarding concealment and furnishing of inaccurate particulars. Detailed Analysis: 1. Legality of the Penalty under Section 271(1)(c): The assessee challenged the order confirming the penalty under section 271(1)(c) on the grounds that it was both legally and factually incorrect. The Tribunal noted that the penalty was imposed based on the estimation of income by applying a Gross Profit (GP) rate and not due to any specific concealment or furnishing of inaccurate particulars. 2. Validity of the Penalty Amounting to ?3,75,300/-: The penalty was levied by the Assessing Officer (AO) based on the addition resulting from the application of a GP rate of 4% on the total sales. The Tribunal observed that the penalty was imposed without pointing out any specific defects in the books of accounts, which were rejected under section 145(3) of the Act. 3. Allegations of Concealment or Furnishing of Inaccurate Particulars: The Tribunal found that the AO had not established any specific concealment or furnishing of inaccurate particulars by the assessee. The penalty was based on the estimation of income, and no specific inaccuracies were identified in the books of accounts. 4. Penalty on Income Assessed on an Estimate Basis: The Tribunal emphasized that penalties cannot be levied on income assessed on an estimate basis without pointing out specific defects. Citing the decision of the Punjab and Haryana High Court in CIT vs. Metal Products of India, it was held that estimation under section 145(1) does not automatically lead to the invocation of penalty provisions. 5. Penalty Despite Relief from ITAT: The Tribunal noted that the ITAT had previously provided relief by adopting a lower GP rate of 3.53%. Despite this relief, the penalty was confirmed by the CIT(A), which the Tribunal found unjustified. 6. Penalty on Debatable and Controversial Issues: The Tribunal agreed with the assessee's contention that no penalty is leviable on debatable and controversial issues. The estimation of income itself was a matter of debate, and thus, penalizing the assessee was not appropriate. 7. Independence of Penalty Proceedings from Assessment Proceedings: The Tribunal reiterated that penalty proceedings are independent of assessment proceedings. Merely because disallowances and additions were made by the AO, it does not automatically justify the imposition of penalties. 8. Lack of Findings on Merits Regarding Concealment and Furnishing of Inaccurate Particulars: The Tribunal criticized the CIT(A) for confirming the penalty without giving any finding on the merits regarding concealment and furnishing of inaccurate particulars. The penalty was confirmed without a detailed examination of the facts. Conclusion: The Tribunal concluded that the penalty levied by the AO and confirmed by the CIT(A) was not justified. The penalty was based on an estimated GP rate without any specific findings of concealment or furnishing of inaccurate particulars. The Tribunal deleted the penalty and allowed the appeal of the assessee. Result: The appeal of the assessee was allowed, and the penalty under section 271(1)(c) was deleted. Order pronounced on 29-06-2018.
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