2016 (7) TMI 1526 - AT - Income Tax

Penalty u/s 271(1)(c) - rejection of books of accounts - HELD THAT - We find that in the present case the books of accounts were rejected and the income of the assessee was estimated by applying a percentage and therefore as held by various orders of the Tribunal and High Courts the penalty u/s 271(1) (c) was not imposable in the present case. See SUBHASH TRADING COMPANY 1995 (11) TMI 37 - GUJARAT HIGH COURT as held in the absence of any other material which might reflect on the conduct of the assessee about a deliberate attempt to maintain false books of account on a preponderance of probabilities no other conclusion could be reached than that the failure to return the correct income was no on account of any fraud or gross or willful neglect on the part of the assessee. As decided in AARKAY SAREE MUSEUM 1990 (8) TMI 97 - BOMBAY HIGH COURT ribunal had rightly held that merely because certain additions were made in the trading account by the Assessing officer it did not necessarily follow that assessee had concealed its income the cancellation of penalty was valid. - Decided in favour of assessee.

Summary

Issues:
- Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Issue Raised in Appeal:
- The only issue raised in the appeal is the confirmation of the penalty imposed by the Assessing Officer under section 271(1)(c) of the Act by the learned CIT(A).

2. Facts and Decision of CIT(A):
- The assessee, a Contractor, had its books of accounts rejected during assessment proceedings, leading to the imposition of a penalty under section 271(1)(c) of the Act.
- The learned CIT(A) confirmed the penalty, emphasizing that accurate income calculation was not possible due to improper maintenance of books by the assessee.

3. Arguments by Assessee:
- The assessee contended that certain expenses like interest, salary to partners, and depreciation were not considered while applying the net profit rate of 8%.
- Citing a previous ITAT order allowing these expenses, the assessee argued that after their inclusion, the assessed income would align with the return of income, making the penalty unjustified.

4. Legal Precedents and Arguments:
- The assessee presented various case laws where penalties were not imposed in cases of income estimation.
- The learned DR supported the lower authorities' decisions.

5. Tribunal's Decision:
- After considering the arguments and legal precedents, the Tribunal noted that the rejection of books led to income estimation, aligning with previous judgments.
- Quoting the Gujrat High Court and Bombay High Court decisions, the Tribunal held that in the absence of deliberate fraud or neglect, penalties were not warranted in such cases.

6. Final Verdict:
- Following the judicial precedents and the reasoning provided, the Tribunal allowed the appeal of the assessee, thereby ruling against the imposition of the penalty under section 271(1)(c) of the Income Tax Act, 1961.
- The order was pronounced in an open court on 12.07.2016.