VEERAVENKATA SATYANARAYANA GATTI,KADIYAPULANKA vs. THE INCOME TAX OFFICER,WARD-2(3), RAJAHMUNDRY

In the above cited appeal, the appellant has challenged the order levied by the Ld.AO u/s 271(1)(c) of the Act, which was sustained by the Ld.CIT(A). In this case, from the assessment order, it is observed that the assessee is in the business of liquor sale and the assessee was not able to produce the liquor sale bills. In view of the same, books of account produced by the assessee were rejected and the profit from the liquor business was estimated at 5% of the total sales of liquor during the year under consideration. The Ld.AO also found that there are certain cash deposits in the bank account of the assessee to the extent of Rs.1.21 crore. The assessee was requested to explain the sources of these cash deposits in his bank account, for which the assessee has replied that these cash deposits are out of the day to day sale proceeds of liquor business and also from the business of plantains, which were supplied by the assessee. The Ld.AR of the assessee has mentioned before the AO that the assessee was procuring plantains from farmers and the same were being sold on commission basis. The Ld.AO was not convinced about the reply furnished by the assessee and made addition of 8% of the total cash deposits, treating the same as sales from plantains business. Thus, the addition was made to the extent of Rs.7.49 lakhs from the liquor business and Rs.9.68 lakhs was made towards plaintains business.

Aggrieved by these additions, the assessee filed an appeal before the Ld.CIT(A) and subsequently, an appeal was filed before ITAT, Visakhapatnam also. ITAT Visakhapatnam Bench has sustained the estimation of profit from liquor business and deleted the addition made towards estimation of income from plantains business. As regards estimation of income with regard to liquor business, the assessee has accepted the addition of Rs.7.49 lakhs and no appeal was filed on the same. On the amount which was sustained by the ITAT, the Ld.AO levied penalty u/s 271(1)(c) and the Ld.CIT(A) has confirmed the penalty levied by the Ld.AO. The Ld.CIT(A) at para 6.3 of his order u/s 250 held that the estimation of income at 5% of total purchases was accepted by the assessee and no appeal was filed against the addition. Since there is no further appeal relating to the estimation of income on the liquor business, the Ld.CIT(A) held that the assessee has understated the income by not disclosing the correct rate of profit which tantamount to furnishing of inaccurate particulars, thereby concealed the income to the extent of Rs.7.49 lakhs. Hence, the penalty levied by the Ld.AO to the extent of Rs.1.53 lakhs was upheld by the Ld.CIT(A).

Aggrieved by the penalty order sustained by First Appellate Authority the assessee filed an appeal before ITAT stating that the order of Ld.CIT(A) is not correct, because he has not furnished inaccurate particulars of income during the assessment proceedings. Before the ITAT, there is no representation by the appellant. Hence the appeal is taken up based on the Grounds of Appeal, Statement of facts, Orders of lower authorities, the Order of ITAT on additions made in the assessment and the Orders of penalty by lower authorities. From these documents/papers filed by appellant it is observed that this is a case of estimation of business income by rejecting the books of accounts maintained by the assessee. It was further observed that the Ld.AO did not point out any mistakes in the books of account and simply rejected the books of accounts. To put an end to the litigation, the assessee has paid taxes and did not file any appeal on the addition relating to estimation of profit on the liquor business. As there is neither concealment of income nor furnishing of inaccurate particulars, penalty should not have been levied by the Ld.AO, nor upheld by the Ld.CIT(A), it was mentioned.

The Ld.DR relied on the orders of the lower authorities.

Heard the Ld.DR and perused the papers filed by appellant. The undisputed facts are that the additions were made by the Ld.AO on an estimate basis and there is no scientific method adopted by the Ld.AO in computing the profit of the assessee. From the assessment order and penalty order, it is observed that the assessee has neither concealed any income nor furnished any inaccurate particulars and hence, penalty cannot be levied u/s 271(1)(c) of the Act. Estimation of profit from the business and subsequent payment of tax on the same cannot be treated as suppression of profit, because, the department did not find out any incriminating material, nor there is any scientific basis to adopt a strict percentage of profit. As the assessee has not furnished any inaccurate particulars, penalty levied by the Ld.AO is deleted.

In the result, appeal filed by the assessee is allowed.