Income Tax Appellate Tribunal - Lucknow
Sahyog Sahkari Shram Samvida Samiti ... vs Assistant Commissioner Of Income Tax on 25 May, 2007
Equivalent citations: (2007)111TTJ(LUCK)540
ORDER
H.L. Karwa, J.M.
1. This appeal filed by the assessee is directed against order of the CIT(A)-I, Lucknow, dt. 14th July, 2006 in confirming penalty of Rs. 1.50 lakhs imposed under Section 271(1)(c) of the IT Act, 1961 relating to asst. yr; 2001-02.
2. Briefly stated, the facts of the case are that assessee is a co-operative society engaged in the business of civil construction. In this case, the AO completed assessment under Section 143(3) of the IT Act, 1961 determining total income at Rs. 11,44,780 against the income returned by the assessee at Rs. 6,05,850. The AO applied flat rate of net profit @ 7 per cent which was reduced to 6 per cent in first appeal by the learned CIT(A)-I, Lucknow. In this case, the AO also initiated penalty proceedings under Section 271(1)(c) of the IT Act, 1961 and a show-cause notice dt. 20th March, 2006 was issued to the assessee. In response to the said notice, assessee vide its reply dt. 27th March, 2006 submitted as under:
It is most humbly submitted that the abovementioned assessee co-operative society has been required to show-cause as to why penalty under Section 271(1)(c) of the IT Act, 1961 should not be imposed against it for concealment of income. In this connection, it is submitted that the assessment of the assessee cooperative society has been completed under Section 143(3) of the IT Act, 1961 by applying the flat rate of 7 per cent which is very much clear from the assessment order and later on which was reduced to 6 per cent in first appeal by the Hon'ble CIT(A)-I, Lucknow. In view of the judgments given by our own Hon'ble Allahabad High Court in the cases of CIT v. K.L. Mangal Sain and CIT v. Nawab & Bros. , no penalty under Section 271(1)(c) of the IT Act, 1961 can be imposed where the flat rate of profit has been applied. Copies of both the judgments are being enclosed herewith. The same view has been followed by the Hon'ble CIT(A)TI, Lucknow, in appeal No 19/l(1)/94-95 in the name of Sri. Deep Chand. Photocopy of said judgment is also being enclosed herewith.
It is, therefore, very (humbly) requested that in view of the written reply to penalty notice given above, Your Honour may kindly be pleased to accept the same and that the proposed penalty proceedings be kindly dropped.
3. The AO did not accept the above reply of the assessee. He further observed that during the course of assessment proceedings, assessee was asked to furnish books of account, bills/vouchers to verify expenses claimed. According to the AO, assessee did not produce any books of account and vouchers. He further observed that purchases were put to verification and found not completely verifiable and therefore net profit rate of 7 per cent was applied on total gross receipts of Rs. 1,63,53,985 and thus he completed assessment at Rs. 11,44,780. The AO also stated that net profit rate to the extent of 6 per cent of gross receipts was upheld by the learned CIT(A). It was also observed by the AO that the conscious effort of the assessee not to furnish books of account for verification tantamounts to concealment of income. While relying on the decision of the Hon'ble Supreme Court of India in the case of K.C. Builders v. Asstt. CIT , the AO took the view that penalty can be imposed if the conduct of the assessee is 'conscious'. According to the AO, in this case the conduct of the assessee was conscious and deliberate while not producing the books of account and bills. The AO held that assessee has concealed its particulars of income deliberately and therefore ho imposed penalty of Rs. 1.50 lakhs under Section 271(1)(c) of the IT Act, 1961.
4. On appeal, the learned CIT(A) confirmed penalty levied by the AO stating that assessee had willfully and deliberately not produced books of account and bills/vouchers before the AO who ascertained its correct income after making verification of the expenses claimed. While relying on the judgment of the Hon'ble Supreme Court of India in the case of K.C. Builders v. Asstt. CIT (supra), the learned CIT(A) stated that in the above case, it has been held that in order to impose penalty under Section 271(1)(c) of the IT Act, 1961, it is to be proved that assessee has consciously made concealment or furnished inaccurate particulars of his income.
5. Before us, Sri. Kanchan Kaushal, learned Counsel for the assessee, reiterated the submissions made before the lower authorities. He further submitted that the learned CIT(A) failed to appreciate law laid down by the Hon'ble Supreme Court of India in the case of K.C. Builders v. Asstt. CIT (supra) and also that the income in the case of the assessee was only estimated by the AO which was varied in favour of the assessee by the learned CIT(A) and, therefore, there is no concealment of income or submission of inaccurate particulars and hence the learned CIT(A) was not justified in confirming the impugned penalty. He further submitted that there is no dispute regarding gross receipts of Rs. 1,63,53,985 shown by the assessee. The profit shown by the assessee was 3.7 per cent approximately. However, the AO applied net profit rate of 7 per cent. He further submitted that the learned CIT(A) reduced net profit rate to 6 per cent as against 7 per cent applied by the AO. The learned Authorized Representative of the assessee submitted that merely because books were rejected, it could not be held that assessee was guilty of fraud or gross or willful neglect. The learned Authorized Representative of the assessee submitted that from the facts of the present case, it is clear that income of the assessee was estimated and nothing has been brought on record by the AO that assessee concealed any particulars of income. The learned Authorized Representative of the assessee also submitted that unless any positive concealment is found, no penalty is leviable on the addition made on estimate basis. Reliance was placed on the following decisions:
(i) CAT v. K.L. Mangal Sain (supra);
(ii) CAT v. Nawab & Brothers (supra);
(iii) CIT v. Nadir Ali & Co. ;
(iv) CAT v. Hamam Singh & Co. ;
(v) CIT v. MM. Rice Mills ;
(vi) Mansukh Dass Soni v. Asstt. CIT (2006) 10 SOT 51 (Jd).
6. In view of the above, the learned Authorized Representative of the assessee submitted that impugned penalty may be cancelled.
7. On the other hand, the learned Departmental Representative strongly supported the orders of the authorities below. He further submitted that in the instant case, the AO rejected books of account and also recorded specific finding and invoked provisions of Section 145 of the IT Act, 1961 while framing assessment. The AO worked out assessee's income by applying a net profit rate of 7 per cent to the total receipts which was reduced by the learned CIT(A) to 6 per cent. According to the learned Departmental Representative, assessee's assessed total income, after giving effect to the order of the learned CIT(A), exceeded the income disclosed by the assessee. According to the learned Departmental Representative, assessee grossly understated its income and has failed to make full and true disclosure of its income in the return of income filed by it. He, therefore, submitted that assessee has consciously made concealment or furnished inaccurate particulars of its income. It was also submitted by the learned Departmental Representative that the learned CIT(A) clearly stated that assessee had willfully and deliberately not produced books of account and bills/vouchers before the AO to ascertain its correct income after making verification of expenses claimed. Thus, it is clear that there was conscious conduct or contemplation of the assessee in making concealment of its income and this fact sguarely displays on the face of record just like a black spot on milky white shirt. He, therefore, submitted that penalty may be confirmed.
8. We have heard the rival submissions and have also perused orders of the authorities below. In this case, assessee had shown total gross receipts of Rs. 1,63,53,985 and the same was accepted by the AO. The AO noted that books of account and bills/vouchers were not produced before him for verification. He further observed that purchases were also found not completely verifiable. In that view of the matter, the AO had applied profit rate of 7 per cent on total gross receipts of Rs. 1,63,53,985. However, in the first appeal, the learned CIT (A) reduced net profit rate to 6 per cent but the action of the AO to reject books of account was upheld by the learned CIT(A). It is claimed by the assessee that it had shown gross profit rate of 3.7 per cent approximately. Thus, it is clear that assessee applied a different net profit rate and the AO and the learned CIT(A) adopted different estimates and, therefore, it could not be said that assessee had concealed particulars of his income so as to attract Section 271(1)(c) of the IT Act, 1961. Recently, this Bench of the Tribunal in a similar circumstance cancelled penalty of Rs. 1 lakh imposed under Section 158BFA(2) of the IT Act, 1961 in the case of Smt. Bitoli Devi v. Asstt. CAT in ITA No. 183/Luck/2006 [reported at (2007) 110 TIJ (Lucknow) 735-Ed.] relating to block period ended on 4th June, 2002. It is relevant to state that penalty under Section 158BFA(2) of the Act is almost in pan materia to Section 271(1)(c) of the IT Act, 1961, which relates to concealment of income. In the case of Smt. Bitoli Devi v. Asstt. CTT, Kanpur (supra), the assessee filed return of undisclosed income showing undisclosed income at Rs. 12,50,000. The profit on sales covered by seized records was estimated by applying a net profit rate of 3.3 per cent approximately. However, the AO applied net profit rate of 4.5 per cent. On appeal, the learned CIT(A) reduced net profit rate applied by the AO to 4 per cent. In second appeal, the Tribunal confirmed the order of the learned CIT(A), hence rate of 4 per cent became final. The final assessed income worked out by the AO was Rs. 13,93,353 as against Rs. 12.50 lakhs declared by the assessee. Thus, addition came to Rs. 1,43,353. The AO levied penalty on the difference between income returned and income assessed. The order of the AO was confirmed by the learned CIT(A). In second appeal, this Bench of the Tribunal cancelled penalty vide order dt. 27th April, 2004, observing as under:
8. We have carefully considered the rival submissions and have also perused the orders of the authorities below. The decisions relied upon by both the parties were also considered. In the instant case, the assessee had submitted block return showing an income of Rs. 12,50,000 which covered all the aspects of the search. The profit on sales was estimated by applying a net profit rate of 3.3 per cent approximately. However, the AO applied the net profit rate of 4.5 per cent. He has not disputed the total figures of sales as found undisclosed. At the same time, the AO has not brought any material either from the seized papers or otherwise suggesting higher estimate of net profit rate be applied. It is relevant to state that no paper was found at the time of search suggesting any profit earned or likely to be earned on undisclosed sales or in respect of the net profit rate. It is seen that the learned CIT(A) reduced the net profit rate to 4 per cent as against 4.5 per cent applied by the AO. The learned CIT(A) took the view that certain expenses must have been incurred by the assessee to make the sales. The learned CIT(A) observed that the net profit rate applied by the AO was on the higher side. He, therefore, held that the net profit rate of 4 per cent would be reasonable. The Tribunal confirmed the order of the CIT(A). In the instant case, the AO estimated the net profit @ 4.5 per cent of the undisclosed sales. However, there was no positive concealment and no asset/investrnent/expenditure was found in excess of the income disclosed in the block return. In our opinion, penalty under Section 158BFA(2) is not mandatory. If the assessee offers a convincing reason or if any reasonable cause is demonstrated for non-inclusion of such income, the penalty is not attracted. In the case of Mala Dayanithi (supra), the Bangalore Bench of the Tribunal held that addition not based on material found during search or material in possession of AO, but based on difference in valuation of property, as disclosed by the assessee and as estimated by the DVO, there was no concealment attracting penalty under Section 158BFA(2) of the IT Act, 1961. In the instant case, there was an estimate at the level of the AO as well as at the level of CIT(A) in respect of net profit rate. From the entire facts of the present case, it would be clear that the income of the assessee was estimated and nothing has been brought on record by the AO that the assessee concealed any particulars of income. In our view, unless any positive concealment is found, no penalty is leviable on the addition made on estimate basis. While taking such a view, we are fortified by the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Promdas (supra). The relevant observations of Hon'ble High Court (at p. 236) are as under:
We have heard learned Counsel for the Revenue and the assessee.
It appears that the assessee had claimed deduction of expenses from the gross freight receipts in respect of his own trucks on estimate basis and had shown income from commission at 7 per cent of the gross receipts in respect of the trucks owned by others. The AO had allowed expenditure at 80 per cent. The CIT(A) allowed expenditure at 84 per cent. Similarly, whereas the AO had estimated income from commission at 10 per cent, the CIT(A) allowed it at 8 per cent.
The Tribunal found that the difference between the returned and the assessed income was due to the difference of opinion about the estimated rates of income and expenditure. Income had been enhanced by the AO by adopting a lower estimate in respect of the expenditure and higher estimate with regard to the income from commission. The AO determined the income of the assessee on estimate basis. The Tribunal noticed that since the difference in estimates was based on a difference of opinion, there was no positive proof regarding concealment of income by the assessee. The assessee had shown expenditure as also the income from commission on estimate basis. The rates of estimate were varied by the AO. These were further varied by the CIT(A). The Tribunal, therefore, cancelled the penalty on the ground that there was no positive evidence to prove suppression of income.
On a consideration of the matter, it is noticed that the assessee had returned income on estimate basis. The AO and the CIT(A) adopted different estimates. It was, thus, a case of difference of opinion.
9. From the above judgment it is clear that the AO and the CIT(A) adopted different estimates, and it was a case of difference of opinion. The Hon'ble Punjab & Haryana High Court held that the Tribunal was justified in law in cancelling the penalty imposed under Section 271(1)(c) of the Act. In our opinion, the penalty under Section 158BFA(2) is almost in pan matena to Section 271(1)(c) of the IT Act, 1961, which relates to the concealment of income. The various Benches of the Tribunal have held that unless any positive concealment is found, no penalty is leviable on the addition made on estimate basis. In the case of Harigopal Singh v. CIT (2002) 177 CTR (P&H) 580 : (2002) 258 JTR 85 (P&H), the Hon'ble Punjab & Haryana High Court held that where the assessment is made on estimate basis, no penalty under Section 271(1)(c) can be imposed. The Hon'ble High Court observed that there was a difference of opinion as regards the estimate of income of the assessee. Since the AO and the Tribunal adopted different estimates in assessing the income of the assessee, it could not be said that the assessee had concealed the particulars of his income so as to attract Clause (c) of Section 271(1) of the IT Act, 1961. In the instant case, the assessee applied a different net profit rate and the AO and CIT(A) adopted different estimates and, therefore, it could not be said that the assessee had concealed the particulars of his income so as to attract section (penalty) under Section 158BFA(2) of the IT Act, 1961. The decisions relied upon by learned Departmental Representative are distinguishable on facts and, therefore, are of no help so far as Revenue's case is concerned. In the case of Raj Bans Singh (supra), the Tribunal came to the conclusion that it was a case of estimate against an estimate and there was no concealment and accordingly it was held that no penalty was imposable. On a reference, the Hon'ble Allahabad High Court held that no penalty under Section 271(1)(c) of the Act was imposable. 10. In view of the above discussion, we are of the considered view that on the facts and in the circumstances of the present case, no penalty under Section 158BFA(2) of the IT Act, 1961 can be levied in this case. Accordingly, we cancel the penalty levied by the AO and confirmed by CIT(A).
9. In the above order, the Tribunal has clearly held that no penalty is leviable on the addition made on estimate basis. In our view, the above decision is squarely applicable to the facts of the present case and therefore we are of the view that no penalty can be levied in this case.
10. In the case of CIT v. K.L. Mangal Sain (supra), the Hon'ble Allahabad High Court held as under:
Held, that the Tribunal had proceeded upon the basis that the burden lay on the assessee, that the only fact proved was that the assessee had not maintained the accounts regularly, for which reason they were rejected and the correct income was estimated by applying a flat rate, and that merely because books were rejected it could not be held that the assessee was guilty of fraud or gross or willful neglect. The Tribunal rightly quashed the penalty order imposed by the IAC.
11. In the above case, the Hon'ble Allahabad High Court has also held that merely because books were rejected, it could not be held that assessee was guilty of fraud or gross or willful neglect. The Hon'ble High Court upheld the order of the Tribunal in cancelling penalty levied under Section 271(1)(c) of the IT Act, 1961.
12. In the case of CIT v. Nawab and Bros, (supra), the Hon'ble Allahabad High Court held as under:
Held, that the only reason why his books were rejected was that the assessee was not maintaining a day-to-day stock register, the correct income was determined by merely applying a flat rate on the returned turnover. In view of these facts, it could not be said that the assessee was guilty of either fraud or willful neglect in the matter and the assessee had discharged the burden that lay on him. The Tribunal was justified in law in cancelling the penalty.
13. In the case of CIT v. Harnam Singh & Co. (supra), the accounts were found not to be properly maintained because profit shown by the assessee was only 5 per cent which was considered by the IT authorities to be low. On that ground, the books were rejected and profit was assessed by applying a rate of 12.5 per cent, the income was enhanced from Rs. 21,452 to Rs. 52,621, and penalty of Rs. 5,000 was imposed under Section 271(1)(c) of the IT Act, 1961. The Tribunal cancelled penalty. On a reference by the Department, the Hon'ble Allahabad High Court held as under:
Held, the Tribunal found that the provisions of Section 271(1)(c) of the IT Act. 1961 cannot be attracted to the assessee's case because the enhancement made by the IT authorities could not be said to be due to fraud or willful neglect on the part of the assessee. The Tribunal's finding is a finding of fact and based as it is on relevant considerations cannot be said to be vitiated. The Tribunal was justified in cancelling the penalty order passed under Section 271(1)(c) of the IT Act, 1961.
14. In the case of Mansukh Dass Soni v. Asstt. CIT (supra), the SMC Bench of Tribunal, Jodhpur, held that in order to bring a case within the ambit of penalty under Section 271(1)(c) of the IT Act, 1961, the mere sustenance of addition is not sufficient. The additions which are based on estimates or disallowances etc., or which do not conclusively show that assessee had concealed his income or furnished inaccurate particulars of income, could not constitute basis for imposition of penalty under Section 271(1)(c) of the IT Act, 1961.
15. In view of the above, we are of the considered view that no penalty under Section 271(1)(c) of the IT Act, 1961 can be validly levied in this case. Reliance placed by the Revenue on the decision of the Hon'ble Supreme Court of India in the case of K.C. Builders v. Asstt. CIT (supra) is of no help to the case of Revenue. In fact, there is no material on record to show that assessee has consciously made concealment or furnished inaccurate particulars of its income. There is no dispute that gross receipt of Rs. 1,63,53,985 shown by the assessee has been accepted by the Department. In our view, merely (because) books of account of the assessee were rejected, it could not be held that assessee was guilty of fraud or gross or willful neglect. Therefore, the decision of Hon'ble Supreme Court of India in the case of K.C. Builders v. Asstt. CIT (supra) is not applicable to the facts of the present case.
16. Recently, the Hon'ble Allahabad High Court in the case of CIT v. Raj Bans Singh (All) upheld the findings of the Tribunal in holding that assessee had not deliberately concealed income. In the said case, the Tribunal held that it was a case of estimate against an estimate and there was no concealment. Accordingly, the Tribunal concluded that no penalty under Section 271(1)(c) of the IT Act, 1961 was imposable.
17. In the result, we cancel penalty of Rs. 1.50 lakhs imposed by the AO and confirmed by the learned CIT(A) and allow appeal of the assessee.