2016 (6) TMI 34 - AT - Income Tax

Penalty under section 271(1)(c) - concealment of income - Held that - There are two components of income assessed, one, income originally assessed and other, addition made in the second assessment order. Now, in the second order penalty under section 271(1)(c) has been initiated, which was not in the original assessment order . Satisfaction of the AO in the second order was with regard to ₹ 35 lakhs only, which was evident from the finding and observation of the AO as reproduced above. It is an undisputed fact in the appellate proceedings the addition of ₹ 35 lakhs was deleted and confirmed from the stage of ITAT and has attained finality. Since the very basis for the initiation of penalty and satisfaction of the AO for the addition of ₹ 35 lakhs got vitiated, therefore, the entire proceedings for levy of penalty does not have any legs to stand. So far as the levy of penalty for the original assessed income of ₹ 3,20,870/- is concerned, there was no initiation at the time of original assessment, therefore, the same cannot be revived in the second assessment order sans any satisfaction or initiation. Thus, on this preliminary ground itself, we are of the opinion that, contention raised by the Ld. Counsel appears to be correct and no penalty under section 271(1)(c) on addition of ₹ 3,20,870/- can be sustained. Accordingly, we direct the AO to delete the penalty of ₹ 73,774/-. Thus, the appeal for the assessment year 2003-04 is allowed. For the assessment year 2002-03 and 2001-02 this case there has been enhancement of contract receipts and estimate of net profit purely on ad-hoc basis without any relevant material on record. Here in this case, the contract receipts has been taken on the basis of entire credit appearing in the bank accounts which cannot be the basis for determining the turnover of contract receipts, at least while levying a penalty under section 271(1)(c), because consideration which arises in the penalty proceedings are separate and distinct from assessment proceedings. Here, in this case now the entire assessment and consequent addition rests upon pure estimation of income, therefore, neither the case of concealment of income nor for furnishing of inaccurate particulars. Thus, penalty levied by the AO and confirmed by the CIT(A) on the premise raised by the authorities below cannot be confirmed. Accordingly, we delete the penalty for both the years. - Decided in favour of assessee.

Summary

Issues Involved:
1. Penalty proceedings under section 271(1)(c) for non-filing of returns and estimation of income.
2. Validity of additions made based on survey disclosures.
3. Justification of penalty levied despite non-cooperation and non-filing of returns.

Issue-wise Detailed Analysis:

1. Penalty Proceedings under Section 271(1)(c):
The appeals were filed against the order of the CIT(A) concerning penalty proceedings under section 271(1)(c) for the assessment years 2001-02, 2002-03, and 2003-04. The quantum of penalty levied was Rs. 5,98,661/- for 2001-02, Rs. 2,31,900/- for 2002-03, and Rs. 73,774/- for 2003-04. The primary contention was whether the penalty was justified, given that the assessee did not file returns and the income was estimated based on gross receipts.

2. Validity of Additions Based on Survey Disclosures:
For the assessment year 2003-04, no return of income was filed. The assessment was completed under section 144 r.w.s. 147, estimating income at a net profit of ?3,20,866/- (8% of gross receipts). During a survey in 2002, the assessee disclosed ?35 lakhs as income for 2003-04. This led to a revised assessment, including the ?35 lakhs, resulting in a total income of ?38,20,870/-. The CIT(A) deleted the ?35 lakhs addition, stating it was based on an ad-hoc estimation without evidence, and the income should have been assessed in the respective years, not clubbed into 2003-04. This deletion was confirmed by the ITAT.

3. Justification of Penalty Levied:
The penalty for 2003-04 was levied on the original assessed income of ?3,20,870/-, which was not initiated in the original assessment order but in the revised order. The CIT(A) upheld the penalty, citing non-filing of returns and non-cooperation. However, the ITAT noted that the penalty was initially not initiated for the original assessed income and was only for the additional ?35 lakhs, which was deleted. Hence, the penalty proceedings lacked a valid basis.

For 2001-02 and 2002-03, the assessments were based on gross receipts reflected in bank accounts, estimating net profit at 8%. The CIT(A) confirmed the penalties, emphasizing non-filing of returns and non-compliance with statutory notices. However, the ITAT highlighted that returns were filed, and the survey party had verified contract receipts and net profit from earlier years. The penalties were based on ad-hoc estimations without considering the returns on record, thus not justifying the penalties under section 271(1)(c).

Conclusion:
The ITAT allowed the appeals, directing the deletion of penalties for all three years. The penalties were deemed unjustified due to the initial non-initiation for the original assessed income, the ad-hoc nature of additions, and the lack of evidence supporting the penalties. The ITAT emphasized that penalty proceedings require a distinct consideration from assessment proceedings, focusing on the substantiation of concealment or inaccurate particulars, which were not adequately demonstrated in these cases.