1994 (11) TMI 181 - AT - Income Tax

Assessed Income Assessing Officer Assessment Year Best Judgment Assessment Penalty For Concealment

Issues Involved:
1. Quantum of income assessment.
2. Penalty under section 271(1)(c) for concealment of income.

Detailed Analysis:

Quantum of Income Assessment:
The assessee, engaged in civil contract works, filed a loss return of Rs. 28,27,249. Due to non-compliance with hearing notices, the Income-tax Officer (ITO) completed the assessment under section 144. Noting issues such as the mercantile system of accounting, lack of projectwise accounts, non-production of books, and unclarified profit margins in sub-contracts, the ITO rejected the books of account under section 145 and reduced the loss by an estimated Rs. 10,00,000. Additionally, a discrepancy of Rs. 19,15,002 was found between receipts declared by the assessee and those shown in T.D.S. Certificates, which was added to the income.

The Commissioner of Income-tax (Appeals) upheld these additions, noting the assessee's inability to explain the discrepancies and the inadequacy of disclosed results. The Commissioner observed that the profit margin, including unaccounted receipts, was 27.62% compared to 33% in the previous year. The Commissioner confirmed the addition of Rs. 19,15,002 and found the lump sum addition of Rs. 10 lakhs reasonable.

Upon the assessee's application under section 154, the Commissioner reduced the addition from Rs. 10,00,000 to Rs. 7,45,253 due to a computational error.

Penalty under Section 271(1)(c) for Concealment of Income:
The ITO imposed a penalty under section 271(1)(c) for the additions and disallowance of depreciation of Rs. 4,38,040. The Commissioner upheld the penalty for suppression of receipts and disallowance of depreciation but deleted it for the addition of Rs. 7,45,253.

The assessee provided a reconciliation statement for Rs. 6,90,088, accounted for in the assessment years 1989-90 and 1991-92, and Rs. 3,23,719 shown in work-in-progress. The Tribunal agreed that these amounts should not be included in the assessee's income for the year under consideration and directed the ITO to verify and allow the deduction accordingly. However, for the balance of Rs. 8,28,781, no explanation was provided, leading to its inclusion as suppressed receipts.

Regarding the penalty for concealment, the Tribunal opined that the suppression of receipts amounting to Rs. 8,28,781 constituted concealed income. However, since the assessment resulted in a loss, no penalty could be levied as per the decision in CIT v. Prithipal Singh & Co. and other similar cases, which held that penalty under section 271(1)(c) is not applicable when the assessed income is a loss.

The Tribunal referenced several judicial pronouncements, including CIT v. Prithipal Singh & Co., Indo German Electricals v. ITO, and H.T. Power Structures (P.) Ltd. v. Asstt. CIT, which supported the view that penalty for concealment is not applicable in loss cases. Additionally, the Tribunal noted that no legislative amendment was made to section 271(1)(c) to levy penalties in such scenarios, unlike the amendments made to section 143(1A).

The Tribunal concluded that no penalty under section 271(1)(c) could be levied when the assessed income is a loss and deleted the penalty accordingly.

Conclusion:
The quantum appeal was allowed in part, and the penalty appeal was fully allowed. The Tribunal directed the ITO to verify the reconciliation statement and adjust the additions accordingly, while also deleting the penalty for concealment of income due to the assessed loss.

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