SHRI PREM RAJWANI,SURAT vs. THE ACIT, CIRCLE-5, SURAT

Ground number 1 and 2 of appeal relates to confirming penalty of Rs.88, 375 levied under section 271 (1) (c) of the Act: 5. Brief facts of the case are that the AO has assessed the total income of the assessee at Rs. 59, 58, 405 /- as against the returned income of Rs. 5, 58, 950/-on which penalty proceedings under section 271 (1) (c) were also initiated: The assessee has filed an appeal against the addition made by the AO. As against the addition so made, the CIT (A) has reduced the addition to Rs. 2, 60, 00o/-by considering 12.5%/ of the net profit ratio on agreed basis. In view of that matter , the AO has levied a penalty of 88, 375 / - on the amount of the Rs.2,60,000 /- as sustained by the CIT(A) 6 Being aggrieved, the assessee carried the matter before CIT (A): The CIT(A) held that this is not the case unlike others where additions are sustained /made purely on estimate of gross profit /net profit basis. Here quantification is done by taking help of net profit ratio formula, but the fact remains that it is pertaining to unaccounted transaction of Rs.44,66,421 / - as appearing in undisclosed bank accounts with IDBI bank: In view of these facts, the Smt: Prem Rajwani /I.T.A. No.2094/Ahd/201S/A.Y.09-10 Commissioner of Income-tax (Appeals) has confirmed the action of AO in levying penalty of Rs.88, 375 /- 7 . Being dissatisfied with the order, the assessee filed this appeal before Us. The AR argued that the learned CIT(A) as wrongly considered that it is not a case of estimation of income: The addition of Rs.44.66 lakhs and Rs.7.80 lakhs made by the AO was reduced to Rs. 2, 60, 0O0/-by applying the net profit ratio. The penalty cannot be levied on estimated addition as decided in many judicial pronouncements like CIT v. Lalubhai Jogibhai Patel 261 ITR 216 (Guj), Hari Gopal Singh v. CIT 258 ITR 85 (P&H) CIT v. Valmikibhai H Patel 280 ITR 487 (Guj): 8 Per contra, the learned DR supported the orders of the lower authorities and submitted that it is not the case of estimation but the source based addition of the initial investment, unaccounted and undisclosed business income deposited #a? in bank account: Therefore, penalty under section 271 (1) (c) has been rightly Imposed by the AO and confirmed by the CIT(A): 9 We have considered the facts and materials available on record. We have gone through the case laws relied upon the Ld: A.R. of the assessee: Looking to the facts and circumstances of the case, we find that the assessee the AO has made addition on account of deposits of Rs.44.66 lakhs as appearing in bank account maintained with IDBI: The CIT (A) has reduced the said addition of Rs. 54 lakhs to Rs 2.60 by applying net profit ratio: The Assessing Officer also made addition of Rs.7.80 lakhs being 20%/ of unverifiable purchases of Rs.39.02 lakhs: Thus, the profit was estimated 12.50%/ of transaction amount which cannot Smt. Prem Rajwani /LT.A. No.2094/Ahd/2o1S/A.Y:09-10 therefore, be termed as conclusive proof of concealment of income or furnishing inaccurate particulars of income: The finding recorded in assessment order is not conclusive for imposition of penalty but it has only persuasive value: Therefore, the profit arrived at is only an estimate work which could be estimated by applying any rate of net profit in this case of business transaction 12.5%/ is adopted by the CIT (A): But the facts remains that it is a case of estimation of income, which no penalty of concealment of income could be levied. We find that in the assessment order, the AO has made additional total amounts and transaction as reflected in bank account: The perusal of para 9.4 of CIT-A order dated 18.02.2013 is quantum appeal reads as under: "9.4 The appellant' s comments were invited on this issue. However , the appellant did not object to this addition of Rs.2,60,000/- , vide order sheet entry dated 14.02.2013. Consequently, additions of Rs.4,66,421 /- and Rs.7,80,494/ - made by the assessing officer and contested in ground no.3 and 4 are substituted by an estimated net profit addition of Rs.2,60,000/ - Consequently, the ground Nos: 3 and 4 are partly allowed in favour of the appellant: 10. However, CIT (A) has estimated income by applying source based and the formula of net profit rate: Therefore, the income estimated by CIT(A) amounts to estimate only. The Hon'ble MP. High Court in the case of CIT vs. Shivnarayan Jamnalal, (1998) 232 ITR 311(MP), has held that when the books of accounts maintained by the assessee were not properly maintained and if assessee has not concealed any material and not tried to defraud the authorities, the penalty cannot be levied, because the income was assessed on estimate basis. We found that similar case has come up before the Hon'ble Punjab and Haryana High Court a Smt: Prem Rajwani /L.T.A: No.2094/Ahd/2IS/A.Y.09-10 Harigopal Singh VS: CIT, 258 ITR 85 (P&H), wherein it is held that it was a difference of opinion, aS regards, the estimate of income of the assessee, it could not be said that the assessee has concealed the income So as to attract the provisions of Section 271(1J(c) In order to protect the clause (c) of Section 271(1) of the Act, it is necessary that there must prove the concealment made by the assessee by way concealment of his income or if he furnishes the inaccurate particulars of income: Since, the final income determined is in this case is an estimate based on some formula and Net Profit Ratio. Therefore, the addition was made on estimated basis on which penalty is not exigible: Therefore, we are of the view that the penalty u/s. 271(1J(c) on such circumstances of the case cannot be levied. Accordingly, the penalty of Rs.88,375 / - confirmed by the CIT(A) is directed to be deleted: 11 In the result, the appeal of the assessee stands allowed: Order pronounced in the open Court on / 2 day of January 2018. S Sd| (O.P. MEENA) VU (CM: GARG)' JUDICIAL MEMBER ACCOUNTANT MEMBER 8 Surat; fealf Dated: | 2 ` 0 1+ 2o18 Copy of order forwarded to- Assessee/AO /Pr. CIT / CIT (A)/ITAT (DR)/Guard file of ITAT: By order 'T | 1S 0| Assistant Registrar, Surat 996 rirpr Gurar axeit enry 7nta, T, (ar #kio