2017 (11) TMI 196 - AT - Income Tax

Tribunal overturns tax penalty based on estimated additions, stresses evidence in penalty proceedings.

Shri Radhey Shyam Versus Income Tax Officer, Circle 38 (1), New Delhi

Shri Radhey Shyam Versus Income Tax Officer, Circle 38 (1), New Delhi - Tmi Issues:Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2009-10 based on estimated additions and rejection of books of accounts.Analysis:Issue 1: Imposition of PenaltyThe appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The assessee challenged the imposition of penalty amounting to Rs. 4,21,040, which was confirmed by the Ld. Commissioner of Income Tax (Appeals). The penalty was imposed based on additions made on account of net profit rate and disallowance of donations claimed as expenses. The main contention was that there was no concealment of income or furnishing of inaccurate particulars, and the penalty was unsustainable in law.Issue 2: Assessment Proceedings vs. Penalty ProceedingsThe Assessing Officer applied a net profit rate to estimate the income of the assessee after rejecting the books of accounts. The Ld. Authorised Representative argued that penalty on ad hoc disallowance or addition made on an estimate basis was not justified. The Ld. Senior Departmental Representative contended that the rejection of books of accounts necessitated the application of the net profit rate, justifying the penalty. The Tribunal emphasized that assessment proceedings and penalty proceedings are separate and distinct, and findings in assessment do not automatically apply to penalty proceedings.Issue 3: Legal Precedents and Burden of ProofThe Tribunal referred to various legal precedents, including the Hindustan Steel Ltd. case and Dilip N. Shroff v. Jt. CIT, emphasizing that the Assessing Officer must establish a satisfaction showing concealment or inaccurate particulars. The burden of proof in penalty proceedings differs from assessment proceedings. The Tribunal highlighted that penalty cannot be imposed solely based on reasons given in the original assessment order. Additionally, the Tribunal cited the CIT v. Reliance Petroproducts case to clarify the conditions for imposing a penalty under section 271(1)(c).ConclusionAfter considering the arguments and legal precedents, the Tribunal held that the penalty imposed on estimated additions, particularly based on the net profit rate, was not justified. Citing precedents from various High Courts, the Tribunal set aside the penalty order and directed the Assessing Officer to delete the penalty. Consequently, the appeal of the assessee was allowed, emphasizing the need for a fresh consideration of evidence in penalty proceedings separate from assessment proceedings.