2007 (5) TMI 281 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - Concealment or furnished inaccurate particulars of its income - Difference between income returned and income assessed by AO and Confirmed by the CIT(A) - HELD THAT - In the case of Mansukh Dass Soni vs. Asstt. CIT 2006 (1) TMI 200 - ITAT JODHPUR the SMC Bench of Tribunal held that in order to bring a case within the ambit of penalty u/s 271(1)(c) of the IT Act 1961 the mere sustenance of addition is not sufficient. The additions which are based on estimates or disallowances etc. or which do not conclusively show that assessee had concealed his income or furnished inaccurate particulars of income could not constitute basis for imposition of penalty u/s 271(1)(c) of the IT Act 1961. Reliance placed by the Revenue on the decision of the Hon ble Supreme Court of India in the case of K.C. Builders vs. Asstt. CIT 2004 (1) TMI 7 - SUPREME COURT is of no help to the case of Revenue. In fact there is no material on record to show that assessee has consciously made concealment or furnished inaccurate particulars of its income. There is no dispute that gross receipt of Rs. 1, 63, 53, 985 shown by the assessee has been accepted by the Department. In our view merely (because) books of account of the assessee were rejected it could not be held that assessee was guilty of fraud or gross or willful neglect. Therefore the decision of Hon ble Supreme Court of India in the case of K.C. Builders vs. Asstt. CIT is not applicable to the facts of the present case. In the result we cancel penalty of Rs. 1.50 lakhs imposed by the AO and confirmed by the learned CIT(A) and allow appeal of the assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Application of net profit rate and rejection of books of account.
3. Alleged concealment of income by the assessee.

Issue-wise Detailed Analysis:

1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal was directed against the CIT(A)'s order confirming a penalty of Rs. 1.50 lakhs under Section 271(1)(c) of the IT Act, 1961, relating to the assessment year 2001-02. The AO had determined the total income at Rs. 11,14,780 against the returned income of Rs. 6,05,850 and imposed a penalty for alleged concealment of income. The assessee argued that penalties should not be imposed where income is estimated by applying a flat rate of profit, citing judgments from the Allahabad High Court in CIT vs. K.L. Mangal Sain and CIT vs. Nawab & Bros.

2. Application of net profit rate and rejection of books of account:
The AO applied a net profit rate of 7% on total gross receipts of Rs. 1,63,53,985, which was later reduced to 6% by the CIT(A). The AO initiated penalty proceedings because the assessee did not produce books of account and vouchers for verification. The AO and CIT(A) upheld the rejection of the books of account due to unverifiable purchases and the conscious effort of the assessee not to furnish books, which was deemed as concealment of income.

3. Alleged concealment of income by the assessee:
The assessee contended that the income was estimated and there was no concealment of income or submission of inaccurate particulars. The assessee's gross receipts were undisputed, and the difference in net profit rates was a matter of estimation rather than concealment. The Tribunal noted that the rejection of books and estimation of income at different rates by the AO and CIT(A) did not constitute positive concealment.

Judgment Analysis:

Rejection of Penalty:
The Tribunal referenced several cases, including Smt. Bitoli Devi vs. Asstt. CIT, where penalties were canceled due to income being estimated rather than positively concealed. The Tribunal emphasized that penalties under Section 271(1)(c) are not mandatory if the income is estimated and no positive concealment is found. The Tribunal cited the Allahabad High Court's ruling in CIT vs. K.L. Mangal Sain, which held that the mere rejection of books does not imply fraud or willful neglect. Similarly, in CIT vs. Nawab & Bros., the court held that applying a flat rate to determine income does not constitute concealment.

Conclusion:
The Tribunal concluded that no penalty under Section 271(1)(c) could be levied as the income was estimated and no positive concealment was found. The Tribunal canceled the penalty of Rs. 1.50 lakhs imposed by the AO and confirmed by the CIT(A), allowing the appeal of the assessee. The decision was consistent with previous judgments, reinforcing that penalties are not justified in cases of income estimation without concrete evidence of concealment.