N.SETHUMADHAVAN,CHENNAI vs. ITO, CHENNAI

आदेश / O R D E R

PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The assessee filed appeal against the order of Commissioner of Income Tax (Appeals)-14, in ITA No. 38/2015-16 dated 27.06.2016 passed u/s. 271(1)(c) and 250 of the Income Tax Act.

ITA No. 2574/Mds/2016 :- 2 -: 2. The assessee has raised only substantive ground that the Ld CIT(A)

has erred in confirming the levy of penalty u/s. 271(1)(c) of the Act by the

Assessing Officer, where the income has been estimated at 10% of gross receipts

and subsequently the Tribunal has reduced the estimation of income to 8%.

Further, the Ld. CIT(A) failed to appreciate the provisions governing the levy of

penalty for concealment of income or furnishing inaccurate particulars of income

are not automatic in nature and prayed for deleting the penalty.

contract works and the proprietor of M/s. Siva Constructions engaged in civil

constructions works and filed the Return of income for the assessment year 2009-

10 on 30.11.2010 with total income of Rs. 9,96,330/-. The books of Accounts are

Audited under provisions of section 44B of the Act, the Assessee filed Audited

financial statements and Tax Audit Report in Form 3CB and 3CD and the Return

of income was processed u/s. 143(1) of the Act. Subsequently, the case was

selected for scrutiny under CASS and notice u/s. 143(2) and 142(1) of the Act

was issued along with questionnaire. In compliance to the notice, the Ld. AR

appeared from time to time and produced Details of cash deposits in assessee's

saving bank account and details of RBS Credit card payments. The Assessing

Officer on verification of the Bank accounts found the cash deposits are made out

of withdrawal of the business receipts from the Current a/c of the proprietary

business and were deposited in assessee's saving bank account in ICICI Bank.

The assessee explained payment of RBS Credit Card payments with documentary

evidence. The Ld. AO in the course of assessment proceedings required the Ld.

ITA No. 2574/Mds/2016 :- 3 -: AR to produce Bank of Accounts and other necessary details of Business for the

financial year 2008-09 as the assessee has not produced any bill vouchers for

claims. The Ld. AR submitted that documents and Books of Accounts provided to

the previous auditors for Audit work and same could not be obtained and

expressed his inability to produced details of Agreements and Civil contracts. The

Ld. AO on verification of Form 26AS found that the total contract receipts u/s.

194C of the Act are Rs. 1,70,56,850/- and TDS at 2% was deducted but as per

the return of income filed the assessee offered contract receipts of Rs.

2,33,09,087/-. The assessee could not substantiate the claims with bills and

vouchers. The Ld. AO has rejected the assessee submissions and estimated

income at 10% of gross receipts of Rs. 2,33,09,087/- and passed assessment

order u/s. 143(3) dated 29.12.2011. Subsequently, Assessing Officer initiated

penalty proceedings u/s. 271(1)(c) of the Act. The Ld. AO in penalty proceedings

has considered the findings of the Assessing Officer in assessment proceedings

and submissions of the assessee on non-availability of Books of accounts, Bills

and vouchers. The Ld. AO found the assessee has filed an appeal against order

dated 29.12.2011 with CIT(A) and Ld. CIT(A) has confirmed the action of the

Assessing Officer and, on further appeal the co-ordinate bench of the Tribunal in

ITA No. 244/Mds/2013 dated 19.12.2014 has considered the grounds and

observations of the Assessing Officer and directed the AO to estimate the income

at 8% of gross receipts. The assessee in the penalty proceedings filed letter on

07.11.2014 explaining the Audit of Books of Accounts, application of provision of

law and relied on the judicial decisions on levy of penalty. The Ld. AO observed

that notice u/s. 143(2) was issued on 19.08.2010 and the assessment was

ITA No. 2574/Mds/2016 :- 4 -: completed on 29.12.2011 and inspite of 16 months time available the assessee

could not produce the Books of account. The Ld AO found the legal decisions

relied by the assessee are distinguishable, and also find that the assessee has

Higher contract receipts as against Rs. 1,70,56,850/- in Form 26AS and the

balance amount is not covered by TDS, and was not proved, and accounted. The

assessee has failed to furnish details of closing stock and other claims of P & L

account. Therefore, Ld. AO is of the opinion that the assessee has failed to

furnish Books of Accounts and expenditure details and levied minimum penalty of

Rs 6,50,999/- u/s. 271(1)(c) of the Act vide passed order dated 20.03.2015.

CIT(A). The Ld. AR argued the grounds and reiterated submissions of assessment

proceedings and explained the circumstances and reasons for not providing the

Books of accounts. The Ld. CIT(A)relied on decision of the quantum appeal of the

assessee and the provisions of section 271(1)(c) of the Act and is of the opinion

that the assessee has submitted inaccurate particular and confirmed the order of

Assessing Officer and dismissed the assessee appeal.

Tribunal. Before us, the Ld. AR argued that the CIT(A) erred in confirming the

order of the Assessing Officer without considering the fact that the penalty cannot

be levied on the estimation of income in the original assessment and the penalty

is not automatic in nature on any addition, the Ld. CIT(A) has overlooked the

facts that the Book of Accounts of the assessee are Audited under provisions of

ITA No. 2574/Mds/2016 :- 5 -: section 44AB of the Act and the assessee could not produced Book of Accounts as

the circumstances were beyond the control of the assessee and was explained

before the Assessing Officer, and Ld. AR relied on the judicial decisions and

prayed for deletion of penalty. Contra, the Ld. DR stipulated on the orders of the

CIT(A) and opposed the assessee grounds.

judicial decisions. The Ld. AR submitted that the penalty cannot be levied when

income is estimated by the Assessing Officer. The Assessee's Books of Accounts

are Audited u/s. 44AB of the Act but due to change of Auditors the Audited books

could not be obtained and also due to various circumstances and could not be

produced. Whereas, the Assessing Officer has estimated the Income rejecting

profit & loss account and Balance sheet and relied only on the information of

Form 26AS where contract receipts are Rs. 1,70,56,850/- but whereas in the

Return of income filed by the assessed the total contract receipts admitted are

Rs. 2,33,09,087/-. The Assessing Officer rejected the contentions and estimated

income at 10% of gross receipts on appeal the co-ordinate bench of the Tribunal

in ITA No. 2214/Mds/2013 dated 19.12.2014 has restricted the statement at 8%

of gross receipts. The Ld. DR contentions are that the assessee has not produced

Books of accounts and bill of vouchers. We found on perusal of assessment

order, the assessee filed the Tax audit report in Form 3CB and 3CD and

substantiated the facts of maintenance of Books of Accounts which the Assessing

Officer should have considered before estimation of income. The Ld. CIT(A) has

dealt on provisions of Explanation 1 to sec. 271(1)(c) of the Act and confirmed

ITA No. 2574/Mds/2016 :- 6 -: the penalty order. We find the levy of penalty cannot be automatic and Ld. AO

shall apply desecratinary process before initiating proceedings and apply principal

of judicial decisions of CIT vs Manjunanth Gimming Mills359 ITR 555 (KtKa). The

levy of penalty is not automatic and every addition cannot be a gateway for

initiating the penalty. Further, where the income is estimated by the Assessing

Officer, High Court of Delhi has held in CIT vs Aero Traders Pvt. Ltd., 322 ITR

316 (Delhi), Similarly, in the case of CIT vs Subhash Trading Co. 221 ITR 110

(Supra), Hon'ble High Court has held "where the income is assessed on estimated

basis after rejecting the books results, penalty u/s. 271(1)(c) cannot be imposed

by mere application of explanation, therefore, in the absence, of any evidence to

conclude a positive findings that there was a concealment of income. We find the

jurisdictional High Court in the case CIT vs Smt K. Meenakshi Kutty (258 ITR 494)

held that the Return, Assessment both being on the estimation basis, penalty u/s.

271(1)(c) was not attracted. Considering the apparent facts, material on record

and judicial decisions, we are of the opinion that the Assessing Officer has levied

penalty irrespective of the fact that the income has been estimated and there is

no concealment of income or submissions of inaccurate particulars by the

assessee. Further, the Accounts are Audited u/s. 44AB of the Act but due to

circumstances beyond the control of the assessee for production Books of

accounts and the Assessing Officer has estimated the income. We rely on judicial

decisions and are of the opinion that the penalty cannot be levied in the case of

estimation of income by the Assessing Officer and the assessee has explained the

reasonable cause. Accordingly, we set aside the order of CIT(A) and Direct the

Assessing Officer to delete the penalty and allow the grounds of the assessee .

ITA No. 2574/Mds/2016 :- 7 -:

Order pronounced on Friday, the 10th day of March, 2017 at Chennai.

Sd/- Sd/- (अ�ाहम पी. जॉज�) (जी. पवन कुमार) (ABRAHAM P. GEORGE) (G. PAVAN KUMAR) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated: 10th March, 2017. JPV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF