2011 (8) TMI 513 - AT - Income Tax

Tribunal upholds cancellation of penalty on GP addition, requires concrete evidence for penalty under Section 271(1)(c).

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to cancel the penalty related to Gross Profit (GP) addition. It was held that ... Penalty levied u/s 271(1)(c) - G.P. addition on the ground that the addition was solely on estimation - The Hon'ble Punjab and Haryana High Court in the case of CIT v. Metal Products of India [1984 -TMI - 27885 - PUNJAB AND HARYANA High Court] observed that the addition if made on estimate under the proviso to section 145(1) of the Act by adopting the view that gross profit shown in the books of account was too low, then that does not automatically lead to the conclusion that there was failure to return the correct income by means of fraud or gross or wilful neglect - The provisions of sec. 271(1)(c) of the Act are not attracted in cases where the income of an assessee is assessed on estimate basis and additions are made therein - Since the difference in estimates was based on a difference of opinion and the revenue did not bring to notice any positive proof regarding concealment of income by the assessee, no hesitation in concluding that it is not a case fit for levy of penalty u/s 271(1)(c) of the Act - Decided in favour of assessee. Issues Involved:1. Deletion of penalty levied under Section 271(1)(c) of the Income-tax Act on Gross Profit (GP) addition based on estimation.2. Validity of penalty imposed on additions under Sections 68 and 69 of the Income-tax Act.Detailed Analysis:1. Deletion of Penalty Levied under Section 271(1)(c) on GP Addition:- Facts and Background: The assessee was involved in transactions with Shri Dhiren A Modi, which were found to be bogus. For AY 1996-97, the assessee declared a low GP rate of 0.156% on a turnover of Rs.21,40,78,679/-. The AO rejected the book results and estimated the GP at 1%, leading to an addition of Rs.18,06,405/-. Penalty proceedings under Section 271(1)(c) were initiated.- CIT(A) Findings: The CIT(A) found that the assessee's purchases were unverifiable due to lack of evidence regarding the identity of unregistered dealers. The GP rate was adjusted to 0.79%.- Tribunal's Decision: The Tribunal further reduced the GP rate to 0.65% for AYs 1995-96 to 1997-98, considering the assessee's non-cooperation and failure to substantiate its claims.- Penalty Proceedings: The AO levied a penalty of Rs.11,77,759/- under Section 271(1)(c). On appeal, the CIT(A) canceled the penalty related to the GP addition, citing the Tribunal's decision in a similar case (Ashok K Shah), where it was held that penalty cannot be levied on estimated additions without concrete evidence of concealment.- Legal Precedents: The judgment referred to various Supreme Court decisions, emphasizing that penalty under Section 271(1)(c) cannot be imposed merely based on estimated additions. The Gujarat High Court in CIT vs. Subhash Trading Co. and other cases held that penalty is not justified when income is assessed on an estimated basis.- Conclusion: The Tribunal upheld the CIT(A)'s decision to cancel the penalty on GP addition, agreeing that the difference in estimates was based on opinion and not on concrete evidence of concealment.2. Validity of Penalty Imposed on Additions under Sections 68 and 69:- Facts and Background: The AO added amounts under Sections 68 and 69 for unexplained credits and investments, as the assessee failed to establish the identity and creditworthiness of creditors and genuineness of transactions.- CIT(A) Findings: The CIT(A) confirmed the penalty for additions under Sections 68 and 69, as the Tribunal had not interfered with these additions in its previous order.- Penalty Proceedings: The CIT(A) distinguished between the penalty on GP addition and the penalty on unexplained credits and investments, confirming the latter.- Conclusion: The Tribunal did not address this issue in the appeal, focusing solely on the penalty related to GP addition. Therefore, the penalty on additions under Sections 68 and 69 remained upheld.Final Judgment:The appeal by the Revenue was dismissed, affirming the CIT(A)'s decision to cancel the penalty related to GP addition. The Tribunal found no grounds to interfere with the CIT(A)'s findings, emphasizing that estimated additions do not automatically justify penalty under Section 271(1)(c) without concrete evidence of concealment. The penalty on unexplained credits and investments under Sections 68 and 69 was not contested in this appeal and thus remained upheld.