2014 (8) TMI 66 - AT - Income Tax

Penalty u/s 271 Rejection of books of accounts and estimated net profit Held that - The books of account of the assessee were rejected by the AO have invoked the provisions of section 145 of the Act after noting discrepancy in the maintenance of the books of account - once the books of account are rejected and net profit is estimated, penalty u/s 271(1)(c) of the Act cannot be attracted, as there is no material on record to establish as to how assessee has concealed the income or has furnished inaccurate particulars of income for attracting penalty under section 271(1)(c) of the Act Relying upon Naresh Chand Agarwal vs. CIT 2013 (6) TMI 68 - ALLAHABAD HIGH COURT - in a case of estimation of income after rejection of books, no penalty could be imposed under section 271(1)(c) of the Act thus, once the books of account are rejected and net profit is estimated by the AO, penalty u/s 271(1)(c) of the Act cannot be imposed Decided in favour of Assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income-tax Act, 1961 for estimation of income after rejection of books of account.

Detailed Analysis:

1. Background: The appeals were filed against the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 by the Assessing Officer. The books of account of the assessee were rejected, and net profit was estimated based on discrepancies found during a survey operation.

2. Contentions: The assessee argued that once the books of account are rejected and net profit is estimated, penalty proceedings under section 271(1)(c) cannot be initiated without evidence of concealed income or inaccurate particulars. The assessee cited relevant case law to support this argument.

3. Judgment Analysis: The Tribunal examined the issue and found that when books of account are rejected and income is estimated, penalty under section 271(1)(c) cannot be imposed without evidence of concealment. The Tribunal referred to a judgment by the jurisdictional High Court supporting this position.

4. High Court Ruling: The High Court held that in cases of estimation of income after rejecting books, no penalty can be imposed under section 271(1)(c) of the Act. The Court emphasized that when additions are made on an estimate basis, penalties cannot be levied without evidence of deliberate concealment.

5. Tribunal's View: The Tribunal concurred with the High Court's ruling and held that in cases where books of account are rejected and income is estimated, penalties under section 271(1)(c) cannot be imposed. The Tribunal emphasized the importance of evidence of deliberate concealment before levying penalties.

6. Final Decision: Based on the above analysis and legal precedents, the Tribunal set aside the penalty orders imposed by the Assessing Officer and allowed the appeals of the assessee. The Tribunal canceled the penalty levied in all three cases, citing the absence of evidence of deliberate concealment.

In conclusion, the judgment highlighted the importance of evidence of deliberate concealment before imposing penalties under section 271(1)(c) of the Income-tax Act, especially in cases where books of account are rejected, and income is estimated. The decision was based on legal precedents emphasizing the need for concrete evidence to support penalty imposition in such cases.