9911796707
TMI Blog2007 (5) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) of the IT Act, 1961 and a show-cause notice dt. 20th March, 2006 was issued to the assessee. In response to the said notice, assessee vide its reply dt. 27th March, 2006 submitted as under: "It is most humbly submitted that the abovementioned assessee co-operative society has been required to show-cause as to why penalty under s. 271(1)(c) of the IT Act, 1961 should not be imposed against it for concealment of income. In this connection, it is submitted that the assessment of the assessee cooperative society has been completed under s. 143(3) of the IT Act, 1961 by applying the flat rate of 7 per cent which is very much clear from the assessment order and later on which was reduced to 6 per cent in first appeal by the Hon'ble CIT(A)-I, Lucknow. In view of the judgments given by our own Hon'ble Allahabad High Court in the cases of CIT vs. K.L. Mangal Sain (1977) 107 ITR 598 (All) and CIT vs. Nawab & Bros. (1977) 107 ITR 681 (All), no penalty under s. 271(1)(c) of the IT Act, 1961 can be imposed where the flat rate of profit has been applied. Copies of both the judgments are being enclosed herewith. The same view has been followed by the Hon'ble CIT(A)-II, Lucknow, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Before us, Sri. Kanchan Kaushal, learned counsel for the assessee, reiterated the submissions made before the lower authorities. He further submitted that the learned CIT(A) failed to appreciate law laid down by the Hon'ble Supreme Court of India in the case of K.C. Builders vs. Asstt. CIT and also that the income in the case of the assessee was only estimated by the AO which was varied in favour of the assessee by the learned CIT(A) and, therefore, there is no concealment of income or submission of inaccurate particulars and hence the learned CIT(A) was not justified in confirming the impugned penalty. He further submitted that there is no dispute regarding gross receipts of Rs. 1,63,53,985 shown by the assessee. The profit shown by the assessee was 3.7 per cent approximately. However, the AO applied net profit rate of 7 per cent. He further submitted that the learned CIT(A) reduced net profit rate to 6 per cent as against 7 per cent applied by the AO. The learned Authorized Representative of the assessee submitted that merely because books were rejected, it could not be held that assessee was guilty of fraud or gross or willful neglect. The learned Authorized Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that penalty may be confirmed. 8. We have heard the rival submissions and have also perused orders of the authorities below. In this case, assessee had shown total gross receipts of Rs. 1,63,53,985 and the same was accepted by the AO. The AO noted that books of account and bills/vouchers were not produced before him for verification. He further observed that purchases were also found not completely verifiable. In that view of the matter, the AO had applied profit rate of 7 per cent on total gross receipts of Rs. 1,63,53,985. However, in the first appeal, the learned CIT(A) reduced net profit rate to 6 per cent but the action of the AO to reject books of account was upheld by the learned CIT(A). It is claimed by the assessee that it had shown gross profit rate of 3.7 per cent approximately. Thus, it is clear that assessee applied a different net profit rate and the AO and the learned CIT(A) adopted different estimates and, therefore, it could not be said that assessee had concealed particulars of his income so as to attract s. 271(1)(c) of the IT Act, 1961. Recently, this Bench of the Tribunal in a similar circumstance cancelled penalty of Rs. 1 lakh imposed under s. 158BFA(2) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make the sales. The learned CIT(A) observed that the net profit rate applied by the AO was on the higher side. He, therefore, held that the net profit rate of 4 per cent would be reasonable. The Tribunal confirmed the order of the CIT(A). In the instant case, the AO estimated the net profit @ 4.5 per cent of the undisclosed sales. However, there was no positive concealment and no asset/investment/expenditure was found in excess of the income disclosed in the block return. In our opinion, penalty under s. 158BFA(2) is not mandatory. If the assessee offers a convincing reason or if any reasonable cause is demonstrated for non-inclusion of such income, the penalty is not attracted. In the case of Mala Dayanithi, the Bangalore Bench of the Tribunal held that addition not based on material found during search or material in possession of AO, but based on difference in valuation of property, as disclosed by the assessee and as estimated by the DVO, there was no concealment attracting penalty under s. 158BFA(2) of the IT Act, 1961. In the instant case, there was an estimate at the level of the AO as well as at the level of CIT(A) in respect of net profit rate. From the entire facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71(1)(c) of the Act. In our opinion, the penalty under s. 158BFA(2) is almost in pari materia to s. 271(1)(c) of the IT Act, 1961, which relates to the concealment of income. The various Benches of the Tribunal have held that unless any positive concealment is found, no penalty is leviable on the addition made on estimate basis. In the case of Harigopal Singh vs. CIT (2002) 177 CTR (P&H) 580 : (2002) 258 ITR 85 (P&H), the Hon'ble Punjab & Haryana High Court held that where the assessment is made on estimate basis, no penalty under s. 271(1)(c) can be imposed. The Hon'ble High Court observed that there was a difference of opinion as regards the estimate of income of the assessee. Since the AO and the Tribunal adopted different estimates in assessing the income of the assessee, it could not be said that the assessee had concealed the particulars of his income so as to attract cl. (c) of s. 271(1) of the IT Act, 1961. In the instant case, the assessee applied a different net profit rate and the AO and CIT(A) adopted different estimates and, therefore, it could not be said that the assessee had concealed the particulars of his income so as to attract section (penalty) under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of either fraud or willful neglect in the matter and the assessee had discharged the burden that lay on him. The Tribunal was justified in law in cancelling the penalty." 13. In the case of CIT vs. Harnam Singh & Co., the accounts were found not to be properly maintained because profit shown by the assessee was only 5 per cent which was considered by the IT authorities to be low. On that ground, the books were rejected and profit was assessed by applying a rate of 12.5 per cent, the income was enhanced from Rs. 21,452 to Rs. 52,621, and penalty of Rs. 5,000 was imposed under s. 271(1)(c) of the IT Act, 1961. The Tribunal cancelled penalty. On a reference by the Department, the Hon'ble Allahabad High Court held as under: "Held, the Tribunal found that the provisions of s. 271(1)(c) of the IT Act, 1961 cannot be attracted to the assessee's case because the enhancement made by the IT authorities could not be said to be due to fraud or willful neglect on the part of the assessee. The Tribunal's finding is a finding of fact and based as it is on relevant considerations cannot be said to be vitiated. The Tribunal was justified in cancelling the penalty order passed under s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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