2015 (10) TMI 735 - AT - Income Tax

Penalty under section 271(1)(c) - disallowance of loss - books of account of the company deliberately not produced before the AO as concluded by CIT(A) - Held that - This is not a fit case for imposition of penalty u/s 271(1)(c) as in assessment order, no incriminating document is alleged to be discovered as a result of search or has been relied on by AO in assessment order to disallow the loss. There is no finding of the AO alleging any document showing unaccounted sales or purchases or inflation of expenses or any other unaccounted income. Assessee s contention about non service of notice u/s 143(2) till the last date of limitation has not been rebutted. Consequently the impugned assessment stands deemed as abetted. In view thereof there is merit in assessee s plea that notice u/s 153A cannot be issued for an abetted assessment, based on search & seizure operations on 27-08-2008 where no incriminating documents as a result of search are discovered. The scope of the assessment u/s 153A is limited to incriminating documents/evidence found as a result of search. In search and seizure operations admittedly no incriminating material belonging to this assessee was found. It is by now settled law that the scope of the assessment u/s 153A is limited to incriminating documents/evidence found as a result of search. There is no justifiable basis to disbelieve the assessee s contention that the books of accounts could not be produced as they were in the custody of Shri Atul Burman who also replied that he has left the company. Besides ld. CIT(A) in AY 2007-08 has endorsed the fact of disputes between directors and assessee s sufficient cause in not producing the books of accounts. Assessee s contention that in search assessments of other group cases which were in their control, all the documents and books were duly produced is not rebutted. There is no reason to assume as to why assessee will not produce the books of a loss making concern. This also indicate that non production of books was non deliberate. Except non production of books, no reason or basis whatsoever has been assigned by authorities below in disallowing the entire loss. Thus disallowance is based on pure guesswork and not on any cogent reason. Hon ble Apex Court in Hindustan Steels Ltd. Vs. State of Orissa (1969 (8) TMI 31 - SUPREME Court). has held that Penalty shall not be imposed merely because it is lawful to do so. Even if a minimum penalty is prescribed the authority shall exercise the discretion judicially and on consideration of all the relevant circumstances; the penalty should not be imposed when there is technical or venial breach of the provisions. - Decided in favour of assessee.

Summary

Issues Involved:
1. Allegation of deliberate non-production of books of account.
2. Confirmation of penalty imposition under section 271(1)(c) of the Income Tax Act, 1961.
3. Distinction of facts from previous cases cited by the assessee.

Issue-Wise Detailed Analysis:

1. Allegation of deliberate non-production of books of account:
The assessee contended that the books of account were maintained at the Mumbai office under the control of the working director, Shri Atul Burman, and due to disputes between directors, the books could not be produced. The authorities below erroneously held that the assessee deliberately did not produce the books. It was argued that no incriminating documents were found during the search, which corroborates the claim that the books were not at the Jaipur office but at Mumbai. The CIT(A) in AY 2007-08 had admitted additional evidence and acknowledged the dispute between directors, preventing the production of books. However, in the present case, the CIT(A) held that the books were deliberately not produced, leading to contradictory findings.

2. Confirmation of penalty imposition under section 271(1)(c) of the Income Tax Act, 1961:
The assessee argued that the penalty was imposed without objective consideration and was based on the summary disallowance of the loss. The penalty proceedings are separate from quantum proceedings, and the validity of the 153A assessment and the merits of quantum additions should be considered in penalty proceedings. The assessment had attained finality due to non-service of notice under section 143(2) within the limitation period, making the 153A assessment and the disallowance of loss void ab initio. The assessee's books were audited by independent statutory agencies, and no incriminating documents were found during the search. The authorities failed to prove any unaccounted sales, purchases, or inflation of expenses. The case law cited supported the argument that the scope of assessment under section 153A is limited to incriminating documents found during the search.

3. Distinction of facts from previous cases cited by the assessee:
The assessee cited several cases, including Shiv Lal Tak vs CIT and CIT Vs Harshwardhan Chemical & Material Ltd, to support their argument against the penalty. The authorities below failed to provide justifiable reasons for disallowing the entire loss and imposing the penalty. The non-production of books was due to disputes between directors, and there was no deliberate intention to conceal income or file inaccurate particulars. The penalty should not be imposed merely because it is lawful to do so, especially when there is a technical or venial breach of provisions.

Conclusion:
The Tribunal concluded that the imposition of penalty under section 271(1)(c) was not justified. The assessment was based on guesswork without any cogent reason, and the non-production of books was due to disputes between directors. The penalty was deleted, and the assessee's appeal was allowed. The judgment emphasized that penalty should not be imposed when there is no deliberate concealment of income or filing of inaccurate particulars.