2018 (1) TMI 454 - HC - Income Tax

Penalty u/s 271(1)(c) - books of accounts of the assessee were rejected - assessee made the surrender in survey operation - Held that - In the present case, the assessing officer has not given any reason as to how he reached the conclusion that the assessee has concealed it s income and furnished inaccurate particulars of it s income . Merely because, the books of account had been rejected it did not in itself establish or prove either of the two circumstance to levy penalty, leave alone both circumstances as the penalty order suggests. The assessing officer, was obliged to reason and state in the penalty order how according to him the assessee had either concealed the particulars of his income or had furnished inaccurate particulars of the same either with reference to the material discovered during the survey proceedings or otherwise. In view of the peculiar facts of this case where the assessing officer had not given any cogent reason in support of conclusion drawn by him to impose penalty, the Tribunal has correctly deleted the penalty relying on the earlier division bench judgement of this Court that rejection of books of account did not automatically lead to the conclusion of concealment or submission of inaccurate particulars of income. - Decided in favour of assessee

Issues Involved:
1. Whether the Tribunal erred in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act despite the rejection of the assessee's books of accounts and subsequent surrender by the assessee.

Issue-wise Detailed Analysis:

1. Tribunal's Deletion of Penalty:
The Tribunal deleted the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, on the grounds that there was no material evidence to establish that the assessee had concealed its income or furnished inaccurate particulars of income. The Tribunal noted that the assessing officer's conclusion lacked reasoning or basis, as the penalty was imposed merely on the presumption of concealment based on the rejection of the books of accounts and the subsequent surrender by the assessee.

2. Assessing Officer's Basis for Penalty:
The assessing officer imposed the penalty after making general observations that various incriminating documents were found during the survey, leading to the assessee's agreement to a net profit rate of 2.35%. However, the assessing officer did not record any specific findings or reasons to support the conclusion that the assessee had concealed particulars of income or furnished inaccurate particulars of income. The penalty was imposed based on the inference that the assessee had concealed its income, without any detailed material or evidence.

3. Tribunal's Reliance on Precedents:
The Tribunal relied on the division bench judgment of the Allahabad High Court in the case of Naresh Chand Agrawal Vs. Commissioner of Income Tax, which followed the Supreme Court judgment in CIT Vs. Reliance Petroproducts P. Ltd. and another division bench judgment in CIT Vs. Arjun Prasad Ajeet Kumar. These judgments established that penalty could not be imposed on estimated income without concrete evidence of concealment or furnishing inaccurate particulars of income.

4. Revenue's Argument:
The revenue argued that the additions to the assessee's income were due to the incriminating material found during the survey, which would not have come to light otherwise. Therefore, the revenue contended that the addition represented concealed income or inaccurate particulars of income, and the Tribunal erred in deleting the penalty.

5. Assessee's Defense:
The assessee's counsel argued that no specific details or particulars of income were discovered during the survey that led to the addition. The assessing officer did not make any addition based on the survey findings but relied on the income disclosed by the assessee in its return. The counsel also emphasized that the assessing officer did not record satisfaction as to the existence of either condition—concealment of income or furnishing inaccurate particulars—required for imposing a penalty under Section 271(1)(c).

6. Court's Analysis:
The court noted that the assessing officer did not provide reasons or evidence to show how the books of account impounded during the survey indicated concealment of income. The rejection of books of account alone did not justify the penalty. The court emphasized that penalty proceedings under Section 271(1)(c) require specific allegations and findings based on material evidence. The court found that the assessing officer merely reiterated the statutory language without establishing either condition for imposing the penalty.

7. Conclusion:
The court concluded that the Tribunal correctly deleted the penalty as the assessing officer failed to provide cogent reasons or evidence to support the conclusion of concealment or inaccurate particulars of income. The court answered the question of law in favor of the assessee and against the revenue, dismissing the appeal with no order as to costs.

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