Mere agreeing to increased net profit rate by itself no ground for penalty u/s 271(1)(c)

Mere agreeing to increased net profit rate, by itself was no ground to levy penalty u/s 271(1)(c) when it was already higher compared to preceding assessment years – ITAT

ABCAUS Case Law Citation:
ABCAUS 2840 (2019) (03) ITAT

Important Case Laws Cited/relied upon by the parties

Harigopal Singh vs. CIT (2002) 258 ITR 85 (P&H)
CIT vs. Sangrur Vanaspati Mills Ltd., (2008) 303 ITR 53 (P&H).

The Assessing Officer (AO) asked the assessee to submit comparative chart of gross profit and net profit ratio for current assessment year and for the preceding two assessment years.

The chart showed that in assessment year under appeal, assessee had shown the net profit rate of 3.37%. However, in preceding assessment years, assessee has shown net profit rate of 2.48% and 1.48% respectively. The gross profit rate in assessment under appeal is 8.87%. However, in preceding assessment years the gp rate was 12.87% and 11% respectively.

The assessing officer, thereafter, examined the books of account of the assessee and the details filed before him and noted certain discrepancies like that the assessee did not maintain stock register, some Bills/ Vouchers related to purchases do not bear any evidence of transportation of material purchased,, bills of expense on account of cartage could not be produced, did not provide details of project-wise material utilization, bills and vouchers related to labour and installation charges are mostly hand made vouchers or rough bills/self generated and payments were made in cash and other expenses could not be verified in the absence of proper bills and vouchers.

The assessee submitted to the AO that his income may be estimated by applying net profit @ 5%. The assessing officer, accordingly, made the addition.

Subsequently, the AO initiated the penalty proceedings u/s 271(1)(c) and finally imposed the penalty for concealment of income.

The CIT(A)  dismissed the appeal of assessee. Aggrieved, the assessee took the matter to the Tribunal.  

The Tribunal observed that as noted by the AO himself in the order, the net profit rate of the assessee was higher as compared to the preceding assessment years. However, the gross profit rate was lesser as compared to the preceding assessment years. The AO had made the addition on account of enhancing the net profit rate from 3.37% to 5%.

The Tribunal pointed out that while considering levy of penalty against the assessee, the A.O. forgot to note that net profit rate of assessee was already higher as compared to preceding assessment year. Therefore, even if there was discrepancies noted in the books of account and other records produced by assessee, but, it was not a case of concealment of income or furnishing inaccurate particulars of income by the assessee.

The Tribunal opined that since the assessee had shown higher income by showing better net profit rate in assessment year under appeal as compared to preceding assessment years, therefore, there was no occasion for the assessee to conceal income or file inaccurate particulars of income.

The Tribunal stated that it was a case of estimated income, in which, assessee agreed for higher net profit rate because of the discrepancies noted by the A.O. in the record produced by assessee.

The Tribunal stated that it is well settled Law that provisions of Section 271(1)(c) are not attracted to the cases where the income of assessee is assessed on estimate basis and additions are made therein on that basis.

The Tribunal noted that no definite finding of fact was given by assessing officer that assessee had concealed the particulars of income or furnished inaccurate particulars of income in this regard. Therefore, by mere agreeing to additional income on account of enhanced net profit, by itself was no ground to levy penalty under section 271(1)(c) of the Income Tax Act, 1961.

Accordingly, the Tribunal set aside the orders of the authorities below and cancelled the penalty.

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