2017 (11) TMI 196 - AT - Income Tax

Penalty u/s 271(1)(c) - N.P. determination - Held that - AO, in the penalty order, has observed that the assessee had concealed the income and has furnished inaccurate particulars. However, the penalty order is woefully silent on the issue as to how this satisfaction of concealment/furnishing of inaccurate particulars was arrived at. The penalty was imposed on the quantum addition which was estimated by applying the net profit rate of 5% as against the net profit rate of 3.65% declared by the assessee. Thus, the addition was, at best, an estimate of the profit by the AO which the assessee would have earned. Therefore, the quantification of the alleged concealment/inaccurate particulars is only an estimate and it is settled law that penalty is not attracted on estimated additions. The Hon ble Delhi High Court in CIT vs. Aero Traders Pvt. Ltd., (2010 (1) TMI 32 - DELHI HIGH COURT ), has held that no penalty u/s 271(1)(c) can be imposed when income is determined on estimate basis. Thus it is apparent that when the bedrock of instant penalty is the estimate of net profit, the same cannot be sustained. Accordingly, we set aside the order of the Ld. CIT (Appeals) and direct the AO to delete the penalty. - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2009-10 based on estimated additions and rejection of books of accounts.

Analysis:

Issue 1: Imposition of Penalty
The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The assessee challenged the imposition of penalty amounting to ?4,21,040, which was confirmed by the Ld. Commissioner of Income Tax (Appeals). The penalty was imposed based on additions made on account of net profit rate and disallowance of donations claimed as expenses. The main contention was that there was no concealment of income or furnishing of inaccurate particulars, and the penalty was unsustainable in law.

Issue 2: Assessment Proceedings vs. Penalty Proceedings
The Assessing Officer applied a net profit rate to estimate the income of the assessee after rejecting the books of accounts. The Ld. Authorised Representative argued that penalty on ad hoc disallowance or addition made on an estimate basis was not justified. The Ld. Senior Departmental Representative contended that the rejection of books of accounts necessitated the application of the net profit rate, justifying the penalty. The Tribunal emphasized that assessment proceedings and penalty proceedings are separate and distinct, and findings in assessment do not automatically apply to penalty proceedings.

Issue 3: Legal Precedents and Burden of Proof
The Tribunal referred to various legal precedents, including the Hindustan Steel Ltd. case and Dilip N. Shroff v. Jt. CIT, emphasizing that the Assessing Officer must establish a satisfaction showing concealment or inaccurate particulars. The burden of proof in penalty proceedings differs from assessment proceedings. The Tribunal highlighted that penalty cannot be imposed solely based on reasons given in the original assessment order. Additionally, the Tribunal cited the CIT v. Reliance Petroproducts case to clarify the conditions for imposing a penalty under section 271(1)(c).

Conclusion
After considering the arguments and legal precedents, the Tribunal held that the penalty imposed on estimated additions, particularly based on the net profit rate, was not justified. Citing precedents from various High Courts, the Tribunal set aside the penalty order and directed the Assessing Officer to delete the penalty. Consequently, the appeal of the assessee was allowed, emphasizing the need for a fresh consideration of evidence in penalty proceedings separate from assessment proceedings.