2021 (10) TMI 15 - AT - Income Tax

Estimation of profit - assessee took a ground that the AO had not allowed salary and interest to partners against the estimated profit to which ld. CIT(A) did not agree as in his opinion in the earlier round, the ITAT, Lucknow 2015 (8) TMI 1536 - ITAT LUCKNOW had already confirmed the findings of ld. CIT(A) to this extent - HELD THAT - As gone through the order passed by the Tribunal it has rejected the contentions of assessee and has confirmed the finding of ld. CIT(A) - The assessee if aggrieved with such Tribunal order should have approached the Hon'ble High Court or should have filed miscellaneous application before this Tribunal for rectification of mistake if any which it has not done and through the grounds of appeal the assessee wants the Tribunal to review its own order which is not permissible in law. Appeal dismissed. Penalty u/s 271(1)(c) - concealment of income - AO estimated the income of the assessee by applying the net profit ratio and has rejected the books of accounts - HELD THAT - Penalty u/s. 271(1)(c) of the Act is imposable on an assessee if an assessee conceals its income or furnishes wrong particulars of income. Since the books of account of the assessee has been rejected and total income has been computed on the basis of N.P. ratio there is no scope for imposition of penalty u/s. 271(1)(c) of the Act. In a number of judgment of various Benches of the Tribunal and courts this view that once books of account are rejected and income is estimated by applying N.P. rate, penalty u/s. 271(1)(c) is not imposable. See NARESH CHAND AGARWAL 2013 (6) TMI 68 - ALLAHABAD HIGH COURT - thus penalty imposed by Assessing Officer u/s. 271(1)(c) of the Act is not leviable. - Decided in favour of assessee.

Summary

Issues:
1. Imposition of penalty u/s. 271(1)(c) of the Act
2. Quantum additions

Analysis:

Issue 1: Imposition of penalty u/s. 271(1)(c) of the Act
The appellant filed an appeal against the imposition of penalty u/s. 271(1)(c) of the Act. The Assessing Officer had estimated the income of the assessee by applying the net profit ratio and rejected the books of accounts. The appellant argued that it had fulfilled its obligation by getting the accounts audited, and the rejection of the audited statements was unjust. It was noted that penalty u/s. 271(1)(c) is applicable if the assessee conceals income or provides incorrect particulars. However, when books of account are rejected and income is estimated using the N.P. rate, the imposition of penalty u/s. 271(1)(c) is deemed inappropriate, as per various Tribunal and court judgments. The Hon'ble Allahabad High Court also held that if income is estimated on a basis of estimation, penalty u/s. 271(1)(c) cannot be imposed. Therefore, the penalty imposed by the Assessing Officer was deemed not leviable, and the appeal against the penalty imposition was allowed.

Issue 2: Quantum Additions
The appeal in ITA No. 549/Lkw/2018 was against the quantum additions where the assessee contested the additions sustained by the ld. CIT(A). The assessment order was passed based on the ITAT order, which had set aside the matter on two issues back to the Assessing Officer. The Assessing Officer computed the net profit of the assessee at 7% and added the profit on the sale of fixed assets. The appellant argued that salary and interest to partners were not allowed by the Assessing Officer. However, the Tribunal upheld the findings of the ld. CIT(A) based on the provisions of Section 184(5) and 185 of the Act. The Tribunal rejected the contentions of the assessee regarding the allowability of deductions for interest and salary paid to partners. The Tribunal concluded that the appellant should have approached the High Court or filed a miscellaneous application for rectification, which was not done. As a result, the appeal in ITA No. 549/Lkw/2018 was dismissed.

In conclusion, the appeal in ITA No. 548/Lkw/2018 against the penalty imposition was allowed, while the appeal in ITA No. 549/Lkw/2018 against quantum additions was dismissed. The orders were pronounced on 22/09/2021.