2013 (8) TMI 741 - AT - Income Tax

Penalty u/s 271(1)(c) of the Income Tax Act - concealment of income - AO rejected to books of accounts since 90% of expenses paid in cash and not verifiable - AO applied the net profit rate @ 3.1% instead of 2.1% - Held that - In the penalty order, the AO did not mention whether he has imposed the penalty for concealment of income or for furnishing inaccurate particulars of income. Relying upon the judgment of Hon ble Gujrat High court in the case of New Sorathia Engineering Co. vs. CIT, 2006 (1) TMI 71 - GUJARAT High Court , wherein it has been held that it is incumbent upon the Assessing Officer to state whether penalty was being levied for concealment of particulars of income by the assessee or whether any inaccurate particulars of income had been furnished by the assessee, it has been held in the present case that levy of penalty on estimate of income be cancelled. There is no definite finding of fact or any contrary material has been brought on record to prove that the assessee has filed inaccurate particulars of income - Levy of penalty under Section 271(1)(c) of the Act in the facts and circumstances of the case at estimate of income, would not be warranted Decided in favor of Assessee.

Summary

Issues Involved: Levy of penalty under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Facts of the Case and Initial Proceedings:
The assessee, a contractor deriving income from government contracts, filed a return disclosing an income of Rs. 74,71,629 with gross receipts of Rs. 35,29,86,493. The Assessing Officer (AO) found that about 90% of the payments were made in cash without documentary evidence, leading to unverifiable expenses and liabilities. Consequently, the AO rejected the book results under Section 145 of the IT Act, increased the net profit rate from 2.1% to 3.1%, and added Rs. 35,29,870 to the income, resulting in a total computed income of Rs. 1,10,01,500. Penalty proceedings were initiated for alleged concealment of income.

2. Assessee's Appeal and Contentions:
The assessee argued that the additions were purely based on estimates and not on concrete evidence of concealment or inaccurate particulars. The AO did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The assessee cited several cases supporting the contention that penalties are not leviable on income estimated by the AO.

3. Tribunal's Consideration and Findings:
The Tribunal noted that the assessee provided complete details during the assessment stage, and the AO's enhancement of the profit rate was to cover discrepancies in unverifiable expenses. The AO failed to specify the nature of the penalty in both the assessment and penalty orders. The Tribunal referenced the Gujarat High Court's decision in New Sorathia Engineering Co. vs. CIT, which mandates that the AO must clearly state whether the penalty is for concealment or inaccurate particulars.

4. Reference to Similar Cases and Precedents:
The Tribunal referred to its own recent decision in the case of Shri Laxmi Narayan Ramswaroop Shivhare vs. ACIT, where penalties were canceled on the basis that the additions were made on estimates. The Tribunal also cited various High Court judgments, including those from the Punjab and Haryana High Court and the Delhi High Court, which held that penalties under Section 271(1)(c) are not justified when income is revised based on estimates without concrete evidence of concealment.

5. Conclusion and Judgment:
The Tribunal concluded that no definite finding or material evidence was presented to prove that the assessee filed inaccurate particulars or concealed income. The penalty under Section 271(1)(c) was deemed unwarranted based on the estimated income. Consequently, the Tribunal set aside the orders of the lower authorities and canceled the penalty.

Final Order:
The appeal of the assessee was allowed, and the penalty levied under Section 271(1)(c) was canceled. The order was pronounced in the open court.