2019 (9) TMI 49 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Rejection of books of accounts - AO completed the assessment by applying net profit rate @ 8% to work out the income in the hands of the assessee - HELD THAT - On perusal of the assessment order passed for the instant assessment year reflects no such satisfaction has been recorded. In the absence of the same, the assessee was not in a position to meet the requirements of the section. Merely, an order issuing notice u/s 274 r.w.s 271(1)(c) do not meet the conditions of the said initiation of penalty proceedings. In the absence of the same, there is no merit in the penalty order passed in the case. In this regard, we find support from the ratio laid down in the case of CIT Vs. Shri Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT AO had levied the penalty both for concealment of the particulars of income and furnished inaccurate particulars of income. AO thus failed to come to any conclusion as to which limb of the said section has not been fulfilled by the assessee. In the absence of the same, we find no merit in the order passed by the AO in this regard. For this, we place reliance on the decision of Pune Bench of the Tribunal in the case of Kanhaiyalal D. Jain Vs. ACIT 2016 (12) TMI 1238 - ITAT PUNE Even on merits where the income has been estimated in the hands of the assessee by applying net profit rate, there is no merit in the levy of the aforesaid penalty for concealment. Where there is only an estimation of income in the hands of the assessee, there is no merit in the aforesaid levy of penalty for concealment. We find support from the ratio laid down in CIT vs Aero Traders P.Ltd. 2010 (1) TMI 32 - DELHI HIGH COURT . Accordingly, we direct the AO to delete penalty levied u/s 271(1)(c) of the Act.- Decided in favour of assessee.

Summary

Issues Involved:
Penalty under section 271(1)(c) of the Income-tax Act, 1961.

Analysis:
The appeal was filed against the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2012-13. The primary issue raised in the appeal was regarding the penalty imposed under section 271(1)(c) of the Act. The key contention of the assessee was that the Assessing Officer (AO) failed to record any satisfaction while initiating the penalty proceedings. Additionally, the assessee argued that since the net profit rate was estimated at 6% by the Tribunal instead of the initially applied 8%, no penalty should be levied for concealment. The Departmental Representative (DR) for the Revenue, however, supported the penalty imposition based on the rejection of the assessee's books of accounts and the estimation of net profit. The Tribunal noted that the AO did not record any satisfaction for initiating the penalty proceedings, which is a fundamental requirement under section 271(1)(c) of the Act. The absence of such satisfaction rendered the penalty order invalid, as held in the case of CIT Vs. Shri Samson Perinchery by the Bombay High Court.

Furthermore, the Tribunal highlighted that the penalty was imposed for both concealment of income and furnishing inaccurate particulars without specifying which limb of the section was violated by the assessee. This lack of clarity in the penalty order was deemed unjustified, as per the decision of the Pune Bench of the Tribunal in the case of Kanhaiyalal D. Jain Vs. ACIT. Moreover, the Tribunal emphasized that when income is estimated, as in this case, without actual concealment, the levy of penalty for concealment is unwarranted. Citing the precedent set in CIT vs Aero Traders P.Ltd., the Tribunal directed the AO to delete the penalty imposed under section 271(1)(c) of the Act. Consequently, the appeal of the assessee was allowed, and the penalty was set aside.