2016 (6) TMI 55 - AT - Income Tax

Tribunal Overturns Income Tax Penalties, Emphasizes Thresholds and Voluntary Disclosures

The Tribunal allowed the appeals in both cases, overturning penalties imposed under Sections 271B and 271(1)(c) of the Income Tax Act. In the first case, ... Penalty under section 271B for failure to get accounts audited - requirement of audit under section 44AB ascertained from turnover recorded in books of accounts - penalty under section 271(1)(c) for concealment of income or furnishing inaccurate particulars - additions made on estimation basis do not constitute concealment warranting penalty - effect of admission during survey on levy of penalty - telescoping of sources for explaining unexplained investment and giftsPenalty under section 271B for failure to get accounts audited - requirement of audit under section 44AB ascertained from turnover recorded in books of accounts - effect of admission during survey on levy of penalty - Whether penalty under section 271B should be sustained where the assessing officer treated undisclosed receipts as increasing turnover above the audit threshold despite turnover in the assessee's books being below the threshold - HELD THAT: - The Tribunal found that the statutory obligation to obtain an audit under section 44AB arises when turnover as per the books of accounts exceeds the prescribed limit. Although the assessee admitted additional unaccounted sales during survey which, if taken into account, would push total turnover above the threshold, those amounts were not recorded in the books of accounts for the year. On the materials before it, the Tribunal concluded that the turnover reflected in the assessee's books was below the threshold; therefore the requirement to obtain an audit under section 44AB did not arise and penalty under section 271B was not attracted. The CIT(A)'s confirmation of the penalty was set aside for failure to appreciate this distinction. [Paras 6, 7]Penalty under section 271B deleted and appeal allowed.Penalty under section 271(1)(c) for concealment of income or furnishing inaccurate particulars - additions made on estimation basis do not constitute concealment warranting penalty - effect of admission during survey on levy of penalty - telescoping of sources for explaining unexplained investment and gifts - Whether penalty under section 271(1)(c) is sustainable where additions (unaccounted turnover, unexplained investment, cash gift) were made on estimation basis and the assessee admitted income during survey and offered tax - HELD THAT: - The Tribunal concluded that where additions are made on an estimation basis and the assessee had admitted additional income during survey proceedings and paid taxes (allegedly to 'buy peace' and cooperate), such estimated adjustments do not necessarily amount to concealment of income or furnishing of inaccurate particulars attracting section 271(1)(c). The assessing officer's additions in respect of unaccounted turnover and unexplained investment were founded on estimates; the assessee explained sources (including sale of deficit stock) for the cash gift. Having regard to these facts and the nature of the additions, the Tribunal found that levy of penalty for concealment was not justified. The CIT(A)'s confirmation and enhancement of penalty were therefore set aside. [Paras 13, 15]Penalty under section 271(1)(c) deleted and appeals allowed.Final Conclusion: The Tribunal allowed the appeals, deleting the penalty under section 271B where audit obligation arose only if turnover as per books exceeded the threshold, and deleting the penalties under section 271(1)(c) where additions were made on estimation basis and the assessee had admitted income during survey and paid tax. Issues Involved:1. Penalty under Section 271B of the Income Tax Act for failure to get accounts audited under Section 44AB.2. Penalty under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars of income.Issue-wise Detailed Analysis:1. Penalty under Section 271B of the Income Tax Act for failure to get accounts audited under Section 44AB:The assessee, engaged in the business of trading in textiles, was subjected to a survey operation under Section 133A of the Income Tax Act, 1961. During the survey, it was found that the assessee did not disclose the true sales in the books of accounts. The total sales for the assessment year 2008-09 were determined to be Rs. 45,70,398, whereas the assessee had declared sales of Rs. 35,94,342 in the return of income. Consequently, the Assessing Officer (A.O.) issued a show cause notice under Section 271B for failure to get the accounts audited as required under Section 44AB, since the turnover exceeded Rs. 40 lakhs. Despite the assessee's contention that the turnover as per the books was below Rs. 40 lakhs, the A.O. levied a penalty of Rs. 22,851.Upon appeal, the CIT(A) confirmed the penalty, agreeing that the turnover exceeded Rs. 40 lakhs and thus attracted the provisions of Section 44AB. However, the Tribunal found merit in the assessee's argument that the turnover as per the books of accounts was less than Rs. 40 lakhs. Since the unaccounted turnover was not recorded in the books due to the absence of necessary sales bills, the requirement for audit under Section 44AB did not arise. The Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the penalty levied under Section 271B.2. Penalty under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars of income:In another case, the assessee, also engaged in the textile business, admitted unaccounted turnover and additional income during a survey operation. The A.O. made additions for unaccounted turnover, unexplained investments in construction, and a cash gift, subsequently initiating penalty proceedings under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars.The CIT(A) confirmed the penalty for unaccounted turnover and cash gift and enhanced the penalty for unexplained investments. The assessee contended that the additions were made on an estimation basis and that the income was surrendered to buy peace and cooperate with the department. The Tribunal found that the A.O. made additions on estimation and that the assessee had explained the sources for the investments and cash gift. Since the additions were based on estimation and the income was admitted during the survey, the Tribunal held that no penalty under Section 271(1)(c) was warranted. The Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the penalty.Conclusion:In both cases, the Tribunal allowed the appeals filed by the assessees, deleting the penalties levied under Sections 271B and 271(1)(c) of the Income Tax Act. The Tribunal emphasized that penalties cannot be levied when the turnover as per the books is below the threshold for audit and when additions are made on an estimation basis.