2015 (4) TMI 1304 - AT - Income Tax

Tribunal reverses penalty for estimation-based gross profit addition, no deliberate concealment found

The Tribunal upheld the CIT(A)'s decision to delete the penalty imposed by the AO on the gross profit addition for A.Y. 2004-05. The Tribunal found no ... Penalty u/s 271(1)(c) - addition made on account of estimation of GP rate - Rejection of books of accounts - Amount treated as income in respect of which particulars have been concealed - HELD THAT:- As seen that out of total turnover of 31.22 crores, the export sales is at 31.20 crores. Thus, the major sales is by way of export only. In the quantum proceedings, the assessee has filed the entire quantitative details of purchases, in which no discrepancy has been found and entire purchases stood verified. Also evident from the fact that the assessee has claimed rebate under the Central Excise, therefore, the said purchases have been verified by the excise department also. There is no discrepancy either in the quantity or in the value of sales made by the assessee - Addition has been made on the ground that there is steep fall in the gross profit rate as compared to the earlier years. The assessee’s case was that, same was due to decrease in sales realization due to devaluation of foreign exchange along with increased in cost of production. The assessee’s explanation regarding fall in foreign exchange has been not been accepted completely on the ground that the average fall of US $ was not much. This cannot be reason for rejecting the assessee’s books and estimating the gross profit unless no discrepancy has been found either in the quantity in value of purchase and sales. Thus, mere estimation of gross profit at 10% which has been further reduced to 7%, cannot be the basis for levy of penalty for furnishing of inaccurate particulars - Decided against revenue. Issues:Penalty under section 271(1)(c) for A.Y. 2004-05 - Deletion of penalty on addition made on account of gross profit.Analysis:Issue 1: Background and Assessment DetailsThe assessee, engaged in manufacturing and export, filed a return showing income of Rs. 61,39,482 after deductions. The assessment resulted in an income of Rs. 4,39,90,930 after disallowances, including on account of gross profit, loss on exchange rate fluctuation, Keyman insurance, and deduction u/s 80HHC.Issue 2: Penalty Initiation and ExplanationPenalty proceedings were initiated on the gross profit addition. The Assessing Officer (AO) noted a decline in gross profit compared to previous years. The assessee attributed this to a fall in the exchange rate. The AO estimated gross profit at 10%, later reduced to 7% by the CIT(A).Issue 3: Penalty Imposition and AppealThe AO levied a penalty on the gross profit addition, despite reductions by the CIT(A). The CIT(A) deleted the penalty, citing contradictions in the AO's penalty order and lack of deliberate concealment. The CIT(A) emphasized that the addition was based on estimation and not deliberate concealment.Issue 4: Tribunal's DecisionThe Tribunal affirmed the CIT(A)'s decision to delete the penalty. It noted that the addition was based on estimation due to a decline in gross profit, attributed to external factors like exchange rate fluctuations. The Tribunal found no discrepancies in the assessee's sales and purchases, supporting the deletion of the penalty.ConclusionThe Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the penalty. The Tribunal emphasized that the penalty was not justified as the addition was based on estimation and not deliberate concealment, supported by the absence of discrepancies in the assessee's financial details.This comprehensive analysis covers the background, penalty initiation, imposition, appeal process, and the Tribunal's final decision regarding the deletion of the penalty on the gross profit addition for the assessment year 2004-05.