2019 (12) TMI 201 - AT - Income Tax

Penalty levied u/s 271B - non maintenance of accounts - HELD THAT - In the instant case, when the books of account are not maintained, the AO did not initiate any proceedings for not maintaining the books of account. AO obviously satisfied that the books of account were not maintained for good and sufficient reasons. When the AO accepted the fact that the books of account are not maintained, there is no reason for him to levy penalty u/s 271B. In view of the above observations, we set aside the order of CIT(A) and delete the penalty levied u/s 271B of the Act Penalty u/s 271(1)(c) - assessee concealed his income by suppressing the gross receipts and hence, worked out the penalty on the amount of tax sought to be evaded u/s 271(1)(c) - additions on which the penalty was imposed was estimated after applying the net profit rate and that it was a settled law that penalty on ad hoc disallowance or addition made on estimate basis was not attracted - HELD THAT - 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. Similar view has been taken in the case of Harigopal Singh vs. CIT 2002 (8) TMI 65 - PUNJAB AND HARYANA HIGH COURT and CIT vs. Subhash Trading Company 1995 (11) TMI 37 - GUJARAT HIGH COURT . In view of the foregoing precedents including the one from the Hon ble Jurisdictional High Court, 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.

Summary

Issues:
1. Penalty under section 271B for failure to comply with section 44AB of the Income Tax Act.
2. Penalty under section 271(1)(c) for alleged suppression of income.

Issue 1: Penalty under section 271B for failure to comply with section 44AB:
The appellant, engaged in the business of running a Kirana and General Stores, filed his return of income for AY 2007-08 without getting his accounts audited as required under section 44AB of the Act. The Assessing Officer (AO) issued a penalty notice under section 271B, which was upheld by the CIT(A). However, the appellant argued that since the turnover was estimated and not based on actual accounts, the audit requirement should not apply. The ITAT held that when no accounts are maintained, the penalty under section 271B does not apply, as the provisions of section 44AB are not violated in such cases. Therefore, the ITAT set aside the penalty levied by the CIT(A) under section 271B.

Issue 2: Penalty under section 271(1)(c) for alleged suppression of income:
In another appeal, the AO imposed a penalty under section 271(1)(c) for alleged suppression of income by the appellant. The AO estimated income based on suppressed gross receipts and credit card payments, and initiated penalty proceedings. The CIT(A) upheld the penalty. However, the ITAT noted that the penalty was imposed on estimated additions, and as per legal precedents, penalties on ad hoc disallowances or additions made on an estimate basis are not valid. Citing judgments from various High Courts, including the Delhi High Court, the ITAT ruled that penalties under section 271(1)(c) cannot be imposed when income is determined on an estimate basis. Consequently, the ITAT directed the AO to delete the penalty imposed under section 271(1)(c).

In conclusion, the ITAT allowed both appeals of the appellant, setting aside the penalties imposed under section 271B and section 271(1)(c), respectively. The judgments provide clarity on the applicability of penalties in cases of estimated turnovers and income determinations, ensuring adherence to legal provisions and precedents.