2019 (6) TMI 706 - AT - Income Tax

Penalty u/s 271 (1)(c) - concealment of business income - profits are estimated owing to rejection of books of account or non-availability of complete details - HELD THAT - This is a clear case of concealment wherein, the entire affairs of the business have been kept concealed from the department. It was only after receipt of information in connection with BCTT and conducting of survey u/s 133A the affairs of the business have come to fore and the revenue has fairly determined the gross profit @ 6.33% on the turnover taking into consideration entire business activities of the assessee. We have also given thought as to whether penalty is levied when addition has been made on estimate basis. At the same time, we find that this case does not fall under the category where the profits are estimated owing to rejection of books of account or non-availability of complete details. This is a case where entire business affairs have been concealed. The assessee has concealed in entirety the factum of running a proprietary concern and the profits derived there on will undisputedly takes the character of concealment of income and hence in view of the above discussion, we decline to interfere with the order of the CIT (A). - Decided against assessee.

Issues Involved:
1. Non-appearance of the assessee at the hearing.
2. Concealment of business affairs and income.
3. Validity of the AOP agreement and its notarization.
4. Applicability of Section 271(1)(c) for penalty.
5. Assessment of penalty based on estimated income.
6. Judicial precedents and their relevance to the case.

Issue-wise Detailed Analysis:

1. Non-appearance of the Assessee at the Hearing:
The appeal was filed on 13.06.2016, and the Tribunal issued a notice to the assessee on 29.04.2019, informing the date of hearing on 12.06.2019. On the designated date, nobody appeared on behalf of the assessee, nor was any letter of adjournment filed. Consequently, the matter was adjudicated based on the materials available on record.

2. Concealment of Business Affairs and Income:
The Income-tax Department conducted a survey under Section 133A at the business premises of the assessee. It was discovered that the assessee was running a proprietary concern named M/s. Eves Trading, involved in exporting readymade garments to Europe and the U.S. The net profit was determined at ?50,48,792, being 6.33% of the total turnover of ?7,93,83,533. The penalty under Section 271(1)(c) was levied due to the concealment of business affairs and income.

3. Validity of the AOP Agreement and Its Notarization:
The assessee argued that the profits were part of an AOP, which was disproved by the Revenue. The AOP agreement, claimed to be prepared on 30.03.2005 and effective from 01.04.2004, was invalid as the Advocate who notarized the deed confirmed that the notarization was not executed by him. The PAN of the AOP was obtained in March 2017, subsequent to the survey action, proving that the income did not form part of the AOP as claimed.

4. Applicability of Section 271(1)(c) for Penalty:
The CIT(A) held that the penalty was leviable based on the rationale given by the Hon’ble Supreme Court in the case of Dharmendra Textiles, 306 ITR 277. The provisions of Section 271(1)(c) are attracted when conditions stipulated in the section are met. Explanation 1 to Section 271(1)(c) justifies the levy of penalty if the assessee fails to offer a bona fide explanation or if the explanation is found to be false.

5. Assessment of Penalty Based on Estimated Income:
The Revenue determined the gross profit at 6.33% on the turnover, considering the entire business activities of the assessee. The case did not fall under the category where profits are estimated due to the rejection of books of account or non-availability of complete details. The concealment of entire business affairs and profits derived therefrom undisputedly took the character of concealment of income.

6. Judicial Precedents and Their Relevance to the Case:
The CIT(A) relied on various judicial pronouncements, including the Supreme Court's judgment in MAK Data P. Ltd. vs. CIT, which stated that even if income is surrendered during assessment proceedings to buy peace, penalty can still be levied. The assessee's reliance on the case of Manjunatha Cotton and Ginning Factory (Karnataka High Court) was found inapplicable as the facts were distinct and distinguishable. The CIT(A) concluded that the assessee failed to discharge the onus of proving the bona fide nature of the explanation provided.

Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the assessee concealed the entire business affairs and the profits derived therefrom, justifying the imposition of penalty under Section 271(1)(c). The appeal of the assessee was dismissed.

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