Case Law Details

Case Name : Vijaykumar Mavjibhai Dodiya Vs. ITO (ITAT Rajkot)
Appeal Number : ITA. No. 187/RJT/2017
Date of Judgement/Order : 04/12/2017
Related Assessment Year : 2009- 10
Courts : All ITAT (5483)

Vijaykumar Mavjibhai Dodiya Vs. ITO (ITAT Rajkot)

Assessee is a small trader engaged in manufacturing and trading of mechanical iron scale. He filed return of income declaring total income at Rs. 1,47,690/-. This was assessed at Rs. 27,40,320/- after taking into account a deposit of Rs. 25,79,207/- found in the bank statement. Challenge to the addition on which penalty was imposed travelled upto the Tribunal, and the Tribunal considering facts of the case, made addition on the basis of estimated net profit at the rate of 10% of deposit receipts. Before the AO, in the penalty proceedings assessee explained that the above deposit did not belong to the assessee, but belonged to the HUF, and since HUF did not have asses sable income and not required to maintain books of accounts, the same was not reflected in the return. Though the explanation of the assessee may not be convincing, it would not lead to the conclusion that the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. There must be a positive and cogent act of concealment on the part of the assessee, which is missing in this case. The provisions of section 271(1)(c) are not attracted in cases where income of the assessee is assessed on an estimate basis and addition is made on that basis. Even if the assessee is not able to substantiate the explanation, but his explanation is not lacking bona fide, and, therefore, we are of the view that it is not a fit where vigour of provisions of section 27 1(1) is attracted.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

Assessee is in appeal against the order of the ld.CIT(A)-3, Rajkot dated 3.4.2017 passed for the Asst. Year 2009-10.

2. Though the assessee has raised as many as 10 grounds, but sole grievance revolves around a single issue i.e. the assessee is aggrieved by the action of the ld.CIT(A) in confirming penalty under section 271(1)(c) of the Income Tax Act, 1961 of Rs. 38,830/-.

3. Brief facts of the case are that the assessee is an individual engaged in manufacturing and trading of mechanical iron scale. He has filed return of income on 9.10.2009 declaring total income of Rs. 1,47,690/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) and thereafter another notice under section 142(1) were issued and served upon the assessee. During the assessment proceedings, as per AIR information received by the AO, a cash of Rs. 23,33,965/- was founded to be deposited in the saving bank account of the assessee bearing no. 10944781270 with State Bank of India, Station Road, Savarkundla, which was not reflected in his return of income. A total amount of Rs. 25,79,207/- was reflected in the bank statement of the assessee furnished by the bank. Reply to the show cause notice, could not find favour with the AO, who accordingly added a sum of Rs. 25,79,207/- to the total income of the assessee. This addition was challenged before the ld.CIT(A) without any success. The assessee then went in appeal before the Tribunal. However, the Tribunal considering the facts of the case inclined to allow relief to the assessee by directing the AO to restrict addition to the extent of 10% of net income of the assessee i.e. Rs. 2,57,920/- (10% x Rs. 25,79,207/-) on estimate basis.

4. Thereafter, the AO initiated penalty proceedings under section 271(1)(c) of the Act which resulted in imposition of penalty of Rs. 38,827/-. The ld.CIT(A) has also confirmed the same. Aggrieved assessee is in before us challenging the impugned penalty.

5. Before us, the ld.cousnel for the assessee contended that there was no deliberate attempt by the assessee to conceal the deposit/ income, as the amount was belonged to asses see’s HUE and that since the HUE has no asses sable income, the assessee believed of not reflecting the same in the He further contended that the Tribunal has in fact leniently considered the issue of the assessee and estimated the net profit of the assessee at 10% of the deposits. It is settled law that no penalty under section 271(1)(c) be imposed on the addition made on estimate basis. The ld.counsel for the assessee relied on some judgments including order of the Tribunal in the case of Rajeshbhai Laxmanbhai Tanti Vs. ITO, ITA No. 731/RJT/2014 order dated 19.10.2015 to the extent that when assessee is not required to maintain books of accounts and addition was made on account of estimation, no penalty under section 271(1)(c) liable to be imposed upon the assessee. The ld.DR, on the other hand, relied upon the orders of the Revenue authorities.

6. We have considered rival contentions and gone through the record carefully. Section 271(1)(c) of the Income Tax Act, 1961 has direct bearing on the controversy. Therefore, it is pertinent to take note of the section.

“271. Failure to furnish returns, comply with notices, concealment of income, etc.

(1) The Assessing Officer or the Commissioner (Appeals) or the CIT in the course of any proceedings under this Act, is satisfied that any person

(a) and (b) ** ** **

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income.

He may direct that such person shall pay by way of penalty. (i)and (Income-tax Officer,)** ** **

(iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits:

Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act,

(A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub- section, be deemed to represent the income in respect of which particulars have been concealed.”

7. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT (Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or dis allowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.

8. In the light of the above, let us examine the facts of the assessee’ s case. Assessee is a small trader engaged in manufacturing and trading of mechanical iron scale. He filed return of income declaring total income at Rs. 1,47,690/-. This was assessed at Rs. 27,40,320/- after taking into account a deposit of Rs.25,79,207/- found in the bank statement. Challenge to the addition on which penalty was imposed travelled upto the Tribunal, and the Tribunal considering facts of the case, made addition on the basis of estimated net profit at the rate of 10% of deposit receipts. Before the AO, in the penalty proceedings assessee explained that the above deposit did not belong to the assessee, but belonged to the HUF, and since HUF did not have asses sable income and not required to maintain books of accounts, the same was not reflected in the return. Though the explanation of the assessee may not be convincing, it would not lead to the conclusion that the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. There must be a positive and cogent act of concealment on the part of the assessee, which is missing in this case. The provisions of section 271(1)(c) are not attracted in cases where income of the assessee is assessed on an estimate basis and addition is made on that basis. Even if the assessee is not able to substantiate the explanation, but his explanation is not lacking bona fide, and, therefore, we are of the view that it is not a fit where vigour of provisions of section 27 1(1) is attracted. Accordingly, we allow the appeal of the assessee and cancel the impugned penalty.

9. In the result, appeal of the assessee is allowed.

Order pronounced in the Court on 4th December, 2017 at Ahmedabad.

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