2016 (7) TMI 528 - HC - Income Tax

Penalty under Section 271(1)(c) - Estimation of net profit for purpose of deduction under Section 80IB read with Section 80IA 10 from 45.39% to 40% - Held that - The levy of penalty by the Assessing Officer was on unjustified grounds and the Tribunal has rightly allowed the appeal filed by the assessee. The Assessing Officer did not give any finding that inaccurate particulars were furnished by the assessee. It appears that the Assessing Officer has compared the profit estimates of different firms in the same line of business and arrived at the conclusion that the assessee had shown better net profit for claiming deductions which are not permissible under the law. Assessing Officer could not point out any cogent irregularity in the books of accounts which have been audited so as to arrive at the conclusion that the net profits were altered. It is improper to arrive at any such conclusion merely on the basis of comparison, presumption and assumption. The Assessing Officer is wrong in estimating the profit of the assessee at 40% basing the same on the profits of other firms in the same line of business when there is no concrete proof about the errors or irregularities in the books of accounts. We find that the Tribunal has rightly directed the Assessing Officer to take into consideration the net profit shown by the assessee and recalculate the deduction u/s 80IB of the Act. - Decided in favour of the assessee.

Summary

Issues involved:
Challenge to order of Income Tax Appellate Tribunal regarding estimation of net profit for deduction under Section 80IB of the Income Tax Act.

Analysis:

1. Admissibility of Appeal: The appellant challenged the order of the Income Tax Appellate Tribunal dated 19.01.2007, questioning the estimation of net profit for deduction under Section 80IB of the Income Tax Act. The High Court admitted the appeal for consideration of substantial questions of law regarding the correctness of the Tribunal's conclusion in reducing the net profit percentage from 45.39% to 40% for the purpose of deduction under Section 80IB and whether the Tribunal's order was perverse.

2. Assessment and Disallowance: The assessee filed the return of income for the assessment year 2001-02, claiming exemption under Section 80IB for the profit from a housing project. The Assessing Officer disallowed the claim, leading to penalty proceedings under Section 271(1)(c). The CIT(A) upheld the additions made by the Assessing Officer. However, the Tribunal, in the impugned order, allowed the appeal by the assessee and deleted the additions. This prompted the revenue to file the present Tax Appeal challenging the Tribunal's decision.

3. Arguments of the Revenue: The revenue contended that the Assessing Officer had estimated the net profit at 40% for claiming deduction under Section 80IB, alleging that the assessee inflated the profit percentage. The revenue argued that the assessee failed to provide detailed purchase and consumption data of building materials, crucial for verifying the profit calculation. The revenue sought to justify the estimation of profit at 40% based on industry standards.

4. Arguments of the Assessee: The assessee's representative argued that the Tribunal rightfully reversed the CIT(A)'s order. It was emphasized that the audited accounts of the assessee showed no irregularities, and the Assessing Officer's comparison with other firms in the same business line was based on presumption and assumption. The representative asserted that the Tribunal correctly found no justification for the lower authorities to estimate the net profit for deduction under Section 80IB.

5. Court's Decision: After considering the arguments and reviewing the orders of the lower authorities, the High Court found that the Assessing Officer's penalty imposition lacked justification. The Court noted that no concrete irregularities were found in the audited accounts to support the estimation of profit at 40%. The Court criticized the reliance on comparison, presumption, and assumption by the Assessing Officer. Consequently, the Court upheld the Tribunal's decision, directing the Assessing Officer to reconsider the deduction under Section 80IB based on the assessee's declared net profit. The Court ruled in favor of the assessee, dismissing the Tax Appeal and confirming the Tribunal's order.

6. Conclusion: The High Court confirmed the Tribunal's judgment, emphasizing the importance of concrete evidence rather than mere comparison in determining profit estimates for tax deductions. The Court's decision favored the assessee, highlighting the need for proper assessment based on audited accounts and factual data rather than assumptions.