2019 (2) TMI 1406 - AT - Income Tax

Tribunal adjusts net profit rate, cancels penalty under Section 271(1)(c) due to charge specification issue.

Shri Gopal Saran Gupta Versus The Income Tax Officer, Ward-Behror, Behror.

The tribunal partly allowed the appeal by directing a re-computation of the net profit rate at 4.21%. The penalty proceedings under Section 271(1)(c) were ... N.P. rate of 5% on unrecorded sales - HELD THAT:- It is pertinent to note that the turnover in question was unaccounted sales of the assessee and, therefore, all other expenditures which are common and below the trading account are already booked by the assessee in the Profit & Loss account against the accounted sales and, therefore, for the purpose of estimating the income on the unaccounted sales the GP would be the income from such unaccounted sales. We find that even if we apply the average of GP for the earlier year including the NP @ 5% for the assessment year 2011-12, it will be around 4.21%. Thus we restrict the addition on account of estimated income in respect of unaccounted sales by taking the NP at 4.21%. The AO is directed to re-compute the addition by considering the NP on unaccounted sales at 4.21%. We may clarify that the earlier order for the assessment year 2011- 12 is not a decision based on the facts but it was only an estimation of income by the A.O. and, therefore, it will not operate either as res judicata or estoppel against the assessee.- Appeal of the assessee is partly allowed. Validity of the order passed under section 271(1)(c) - HELD THAT:- When the AO has not specified the limb for initiation of penalty proceedings under section 271(1)(c), the same is bad in law and accordingly the impugned order passed under section 271(1)(c) is not sustainable in law and liable to be quashed. Issues Involved:1. Application of Net Profit Rate on Unrecorded Sales2. Validity of Penalty Proceedings under Section 271(1)(c)Issue-Wise Detailed Analysis:1. Application of Net Profit Rate on Unrecorded Sales:The assessee, a wholesale dealer in Kirana and Grain items, filed a return of income declaring a total income of Rs. 2,76,210/-. During scrutiny, the AO discovered an undisclosed savings account with Indusind Bank, where the assessee had deposited Rs. 2,00,48,100/- in cash. The assessee admitted these deposits as unrecorded sales amounting to Rs. 2,09,30,560/-. The AO proposed applying a net profit (NP) rate of 5% on these unrecorded sales, resulting in an addition of Rs. 10,46,258/-. The assessee objected, suggesting that the NP rate should be based on the declared GP rate of 2.43% for the current year or the average GP rate of previous years.The CIT (A) upheld the AO's decision, noting that the assessee had accepted a 5% NP rate for the assessment year 2011-12. However, the tribunal found that since the unrecorded sales were not disclosed in regular books, the GP rate should be considered. The tribunal directed the AO to re-compute the addition using a NP rate of 4.21%, reflecting the average GP rate of previous years, thereby partly allowing the assessee's appeal.2. Validity of Penalty Proceedings under Section 271(1)(c):The assessee challenged the penalty order under Section 271(1)(c), arguing that the AO did not specify whether the penalty was for 'concealment of particulars of income' or 'furnishing inaccurate particulars of income.' The assessee referenced the Hon’ble Supreme Court's decision in CIT vs. SSA’s Emerald Meadows and the Karnataka High Court's decision in CIT vs. Manjunatha Cotton & Ginning Factory, which mandate clear specification of the charge in penalty proceedings.The tribunal noted that neither the assessment order nor the show cause notice specified the exact charge. The tribunal cited the Coordinate Bench's decision in Shri Chandmal Kumawat vs. ITO, which held that non-specification of the charge reflects non-application of mind by the AO and prejudices the assessee's right to a reasonable opportunity to defend. Consequently, the tribunal quashed the penalty order under Section 271(1)(c), deeming it invalid due to the lack of specificity.Conclusion:The tribunal partly allowed the appeal regarding the application of the NP rate, directing a re-computation at 4.21%. The penalty proceedings under Section 271(1)(c) were quashed due to non-specification of the charge, fully allowing the assessee's appeal on this issue. The order was pronounced in the open court on 25/10/2018.