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Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI A.D. JAIN & DR. MITHA LAL MEENA
PER, DR. MITHA LAL MEENA, AM:
This appeal, by Assessee is directed against the order dated 15/01/2016, of the Commissioner of Income Tax (Appeals), Gwalior [herein after referred to as “the CIT(A)”], confirming penalty of Rs. 6,61,660/- imposed upon the assessee u/s 271(1)(c) of the Income Tax Act, 1961 (In short “the Act”) by the Assessing Officer (in short “the AO”), without appreciating the fact and merits of the case.
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The brief facts are that the A.O, rejected book results u/s 145(3) and estimated profit @12.5% of the gross receipts while completing the assessment. The same was reduced to 6% by the ld. CIT (A) observing that the estimation appears to be on higher side. This is further reduced to 3% by the ITAT, Agra Bench, Agra. The A.O has levied the penalty in respect of this addition.
While confirming the penalty order, the ld. CIT (A) has observed as under: -
“8. The aspect of the department accepting a much lower rate of net profit in earlier years is only an indicator but not decisive for penal proceedings in this year in regard to inaccurate particulars. Rather, it is the nature of the business which has to be seen in the background in order to determine whether the appellant was not guilty of furnishing inaccurate particulars. Observed from this angle, it is clear that in the line of construction contracts or labour contracts making of self- made vouchers and in some instances non-availability of bills is an inevitable corollary of the trade situation. This has to be borne in mind while deciding whether the assessee is liable for penalty. The aspect of Hon'ble ITAT upholding the rejection of books proves that in view of the incomplete details available with the assessee, estimation of income has to be made. But the key observation while rejecting the books is observation regarding "inflation of expenses" which establishes contumacious conduct on part of appellant and amounts to falsification of records for reducing tax liability. 9. The observation of Hon'ble ITAT has gone unchallenged in terms of further appeal. Otherwise too, this is a finding of fact which is finalized by the last fact-finding authority. Once this is final the charge of inaccurate particulars immediately kicks into play. In penal proceedings and in the appeal before me the key submission of assessee, is that penalty cannot be
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levied on estimated income. It has been demonstrated above that this is clearly not so and definitely cannot be a undisputed legal proposition. The case authorities cited above demonstrate the same. The aspect of inflation of expenses is a key finding of fact on which the foundation of penalty is laid down. I am in respectful disagreement with decision of my predecessor (Ref. Para 4 Appeal No.605 AY 2010-11, order dated 10.09.2014 in appellant's own case cited by him) because firstly, the factual aspect is different in as much as the finding of Hon'ble ITAT is present. Secondly, the legal position brought out in respect of penalty and estimated addition was not considered.” 4. The AO has rejected the books of accounts under Section 145(3) of the Income Tax Act and applied the net profit rate 12.5% on the total receipts shown by the assessee. In the appeal, net profit rate was reduced to 6% and thus, the assessee’s income was finally determined at Rs.21,41,995/-on estimate of estimate basis.
In the Assessment Year 2010-11, on the similar fact, the AO has levied the penalties under Section 271(l)(c) where the addition was also sustained by the Hon'ble ITAT by applying the net profit rate of 3%. The penalty so imposed was cancelled by the CIT (Appeals) and the order of CIT (Appeals) cancelling the penalty was sustained by ITAT, Agra Bench. In Assessment Year 2009-10, in the present year, the penalty was imposed by the Assessing Officer on the addition sustained a net profit rate of 3% applied by ITAT, Agra Bench. The ld. CIT(A) has confirmed the penalty and now the assessee is in appeal before the Hon'ble ITAT against the penalty order. The facts and issues, involved in
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both the assessment years i.e. 2009-10 and 2010-11, were similar in respect of addition as it was made on estimate basis which was reduced
substantially at both the level of appeals. The ld counsel contends that in the assessment year 2010-11, in the case of the assessee, the ITAT has cancelled the penalty on similar facts, therefore the penalty imposed on the income estimated may be deleted for this year.
The ld. AR further submitted that the addition to the income has been made on estimate basis without bringing any specific material on
record and that the AO failed to establish whether there was a failure on the part of the assessee to furnish in accurate particulars of income or concealment of income and hence imposing penalty is not justified
relying on the following decisions.
I. ACIT Vs. Naresh Katare Contractor, ITA No. 333/Agr/2014, Agra Bench Agra. II. CIT Vs Reliance Petro Products (p) Ltd. [2010] 322 ITR 158 (Sc). III. CIT Vs Aero Traders (Pvt.) Ltd. [2010] 322 ITR 316(Del). IV. CIT Vs Modi Industries Corporation [2010] 115 Taxman 68 P&4 [2010]21 DTR 158. V. Dy. CIT Vs. Kalindi Rail Engg. Ltd. ITA No. 322 [Del of 2008] [2012] 21 Taxman.Com 24 (Del tribunal). VI. CIT V/s Iqubal Singh & Co. (2009) 180 Taxman 355 Punjab & Haryana.
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VII. ITAT Agra Bench, Agra in the cases of- Hariyana Delhi Tpt Commission Agency Vs. ACIT, ITA No. 72 TTJ189 LaxminarayanShivhare Vs. JCIT, ITA No. 68/Agr/13 Osho Associates Vs. ACIT Circle(3), ITA No. 132/Agr/13 ACIT Vs. Manjeet Singh, ITA No. 4459/Del/92
The ld. DR vehemently supported the order of the ld. CIT(A) contending that the assessee has not produced the books of account during the course of scrutiny and therefore the ld. CIT(A) was right in law and on facts in confirming the penalty of Rs.6,61,660/- imposed by the AO upon the assessee u/s 271(1)(c) of the Act. In support,he placed reliance on the following decisions.
I. 42 Taxman.Com 20 (Del HC), CIT vs Arcotech Ltd. II. 152 ITR 529 (Madras HC), CIT vs B.A. Balasubramanian & Brothers Co. where it was observed that in the cases of assessment on the basis of estimates, applicability of section 271(1)(c) can not be ruled out. III. 124 ITR 376 (Madras HC) Rathnam& co. vs. IAC. IV. 236 ITR 977 (SC) the apex court in the case of CIT vs B.A. Balasubramanian & Brothers Co. decision of hon’ble Madras High Court affirmed, cited 124 ITR 376. V. 118 Taxman 324 (SC) and 251 ITR 99 (SC) Maka Data VI. ITA. No. 3009/Ahd/2007/A.Y. 2001-02 M/s Harish Hosiery Mart.
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We have heard the rival contentions, perused the facts and written submissions placed on record. It is undisputed fact that the assessee’s taxable income was 9. assessed on estimated basis. In quantum appeal, before us, the net profit rate is reduced to 3% as against 6% estimated by ld. CIT(A) and 12.5% estimated by the AO, of the gross total receipt as above. The ld. AR contended that it is a case of an estimate against an estimate. As such, there was no concealment of income and accordingly no penalty is imposable as held in the case of ‘CIT vs. Raj Ban Singh’, (2005) 276 ITR 351(All). The Hon’ble Delhi High Court in the case of ‘CIT vs. Aero Traders Pvt. Ltd.’, (2010) 322 ITR 316(Del); and ‘(2010) 231 CTR 524’, and in many decisions of ITAT, Agra Bench, Agra, (Supra), it was held that penalty is not leviable when income was assessed based on estimated profit and substantially reduced by the Tribunal. In the present case, the assessment was based on estimated profit @ 12.5 % which is substantially reduced by the ld. CIT (A) by estimating @ 6 % and further reduced by the Tribunal @ 3% in quantum appeal. The cases referred by the Ld DR are distinguishable on their own peculiar facts.
It is noted that the AO has not recorded specific satisfaction in the assessment order, on fact for initiating penalty u/s 271(1)(c) of the Act whether it was for concealment of income or furnishing of inaccurate
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particulars of income. He has mentioned that penalty proceedings U/s 271(1)(c)are initiated separately. It is noted that neither the AO nor the CITA) have computed the quantum of expenses. Merely observation of “inflation of expenses” is not sufficient to penalise the assessee for the charge of concealment of income or furnishing of inaccurate particulars of income. The AO observe in Para-8, page4 that the expenditure claimed in the Profit and Loss Account are not supported by vouchers and bills and that on perusal of books of accounts, it is seen that they are mostly paid in cash. To prove the charge of concealment of income, either the AO or the ld CIT(A) ought to have pointed out specific bills and vouchers which are paid in cash by the assessee and crystallised such bogus expenses if any by bringing material evidence on record. Therefore, questioning the reasonableness and genuineness of the of cash expenses incurred in contract business can not be a ground to fix the assessee under the charge of penalty U/s 271(1)(c) in the case of estimate of estimate of income.
Following the decisions of ITAT Agra Bench, Agra in the cases of ‘Laxminarayan Shivhare Vs. JCIT’, ITA No. 68/Agr/13 and ‘Osho Associates Vs. ACIT Circle(3)’, ITA No. 132/Agr/13 cited supra, on similar fact, we have confirm the order of ld. CIT(A) deleting penalty u/s 271(1)(c) in the assessee’s own case for the Assessment Year 2010-11,
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in ITA No. 333/Agr/2014. Therefore, we find no merit in the order of the
ld. CIT(A) and accordingly, the order of the ld. CIT(A) is reversed and
the penalty is cancelled.
In the result, appeals of the assessee is allowed.
Order pronounced in the open Court on 09/11/2017.
Sd/- Sd/- (A. D. JAIN) (DR. MITHA LAL MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Aks/-
Dated: 09/11/2017