2016 (5) TMI 922 - AT - Income Tax

Penalty Order Overturned Due to Lack of Concrete Evidence

The Tribunal found the penalty order unsustainable as penalties cannot be imposed solely on estimated figures without concrete evidence of income ... Penalty u/s 271(1)(c) - whether the penalty can be imposed on the basis of estimated addition by applying the gross profit on the basis of immediate preceding year’s gross profit on the estimated turnover? - Held that:- AO has proceeded to pass the assessment order with biased mind that the raid was conducted on the premises of the assessee on1 2.09.2004 and FIR was registered regarding seizure of three trucks of spurious cement. But, merely on the basis of registration of FIR, no order to the prejudice to the assessee can be passed that he had been making sales and purchases outside the books of accounts. Undisputedly, no such material has been brought on record by the AO nor called upon by the CIT (A) during appellate proceedings, if the allegations levelled in the said FIR have been proved in the court. AO proceeded to adopt the estimated gross profit at 33% on the ground that, “in the assessment year 2000-01, a TEP was received by the department wherein it was informed that the appellant had indulged in making sales and purchases outside the books. Such old habits seldom vanish and the same is indicated in terms of discrepancies pointed out by the AO in the books of accounts and the Excise Department has also reported evasion of tax.” These observations of the AO are based upon conjecture and surmises without having any cogent material on record which have been confirmed by the CIT (A) in mechanical manner and then the said order has been blindly adopted by the AO to pass the penalty order. Merely on the basis of the fact that the Excise Department has conducted raid on the business premises of the assessee and detected tax evasion, the assessment order cannot be passed that too on the basis of estimated turnover and estimated gross profit in the face of books of accounts which have never been rejected by the revenue authorities - Decided in favour of assessee Issues involved:1. Assessment of penalty under section 271(1)(c) for assessment year 2005-06 based on estimated turnover and gross profit without rejecting books of accounts.Detailed Analysis:The appellant, a private limited company engaged in manufacturing and sale of cement, appealed against the penalty imposed under section 271(1)(c) for the assessment year 2005-06. The initial assessment estimated the gross profit based on the preceding year's turnover, resulting in an addition to the income. The CIT (A) provided partial relief, but penalty proceedings were initiated based on the estimated figures. The AO imposed a penalty of Rs. 6,00,000 without clear reasoning, leading to the appellant challenging the decision before the Tribunal.The primary contention raised by the appellant was the imposition of penalty on estimated additions without a proper rejection of the books of accounts or a clear determination of the nature of defaults. The AO and CIT (A) applied estimated turnover and gross profit rates without sufficient basis, leading to discrepancies in the penalty imposition process. The Tribunal noted that penalties cannot be imposed solely on estimated figures without concrete evidence of concealment of income or inaccurate particulars.The Tribunal highlighted several flaws in the penalty imposition process, including the lack of sufficient opportunity for the appellant to be heard, the absence of clear findings by the AO, and the reliance on conjectures and past incidents without substantial evidence. The AO's failure to consider the appellant's explanation regarding changes in the manufacturing process and the mechanical adoption of previous orders were also noted as deficiencies in the penalty assessment.Ultimately, the Tribunal found the penalty order unsustainable due to the absence of concrete evidence supporting the imposition of penalties based on estimated turnover and gross profit. The Tribunal allowed the appeal, emphasizing the importance of a thorough assessment based on actual facts rather than estimations when imposing penalties under section 271(1)(c) of the Income-tax Act, 1961.The judgment serves as a reminder of the legal requirement for penalties to be imposed based on clear evidence of income concealment or inaccurate particulars, rather than mere estimations or assumptions. It underscores the significance of a robust assessment process and the need for authorities to provide ample opportunity for parties to present their case before imposing penalties.