Dy. CIT v. Kalindi Rail Nirman Engg. Ltd.

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The Tax Publishers2013 TaxPub(DT) 0393 (Del-Trib) : (2013) 049 (II) ITCL 0282 INCOME TAX ACT, 1961 --Penalty under section 271(1)(c)--Concealment Ad hoc estimation of income by applying net profit rate--Assessee was a contractor undertaking project of Indian Railways on turnkey basis. A search action under section 132 was carried out. The assessee-company maintains many branches/project offices all over India. assessing officer applied net profit rate @ 11 per cent on the total contract receipts on estimate basis which was reduced to 8 per cent by ITAT. A penalty under section 271(1)(c) was levied. Commissioner (Appeals) deleted the penalty on the ground that the estimation of income by applying flat net profit ratio does not tantamount to concealment or filing inaccurate particulars. *Held:* On ad hoc estimation of income by applying flat rate of the profit which in no certain terms can be held either as concealment or as filing inaccurate particulars of income penalty under section 271(1)(c), therefore, could not be imposed. Income Tax Act, 1961, Section 271(1)(c) Income Tax Act, 1961, Section 145 In the ITAT, Delhi D Bench R. P. Tolani, J.M. & B.C. Meena, A.M. Dy. CIT v. Kalindi Rail Nirman Engg. Ltd. ITA No. 322 (Del) of 2008 A.Y. 2003-04 29 March, 2012 *Decision:* In assessees favour. Appellant by : N.K. Chand Respondent by : R. K. Sharma ORDER *B. C. Meena, A.M.* This appeal filed by the revenue emanates from the order of Commissioner (Appeals)-I, Jaipur dated 26-10-2007 for the assessment year 2003-04. 2. The assessee is a contractor undertaking project of Indian Railways on turnkey basis. A search action under section 132 of the Income Tax Act was carried out on 14-3-1995. The assessee company maintains many branches/project offices all over India. The assessing officer applied net profit rate @ 11% on the total contract receipts on estimate basis which was reduced to 8% by ITAT vide its order dated 5-9-2002. A penalty under section 271(1)(c) was levied of Rs.24,00,977 on 31-3-2002. The Commissioner (Appeals) deleted the penalty on the ground that the estimation of income by applying flat net profit ratio does not tantamount to concealment or filing inaccurate particulars. The Commissioner (Appeals) granted the relief by holding as under : 'The contention of the Authorised Representative is considered. The Honble ITATs order (DB) was gone through. While fixing profit rate at 8% and subject to allowance of depreciation and interest there on the Honble ITAT has found profit rate of 8% as 'quite reasonable'. The Honble ITAT also observed that the proposal of the assessee for fixing net profit rate of 11 % was a conditional proposal and was a counter offer to the proposal made by the assessing officer which came to be made as appellant at the relevant time was not able to collect information about such contracts or produce those personnel. It was merely to purchase peace and avoid any dispute with the department. From the record it appears that the assessing officer though made various queries but has not stated basis of its estimation nor gave chance to the appellant to rebut basis of arriving at the application of the presion rate of 11 %. The counter proposal of the assessee was conditional offer as to the allowability fastened with the conduct of the activity. But the assessing officer neither informed the appellant with the proposal so made is acceptable nor he did act in accordance with the offer so made by the appellant. The assessing officer took profit rate at 11 % and allowed depreciation alone leaving interest which was a condition precedent to the proposal of the appellant. The counter offer of the appellant therefore could not be termed as an agreement within the true spirit of well known doctrine of election as it was necessary for the assessing officer to confirm to all the provisions and conditions of the instrument of offer made by the appellant so as to termed it as an agreed assessment or application of rate of profit on agreed basis. Even if the net profit rate taken by the assessing officer is as per the agreement with the appellant it automatically does not tanta amount to concealment of income or furnishing of inaccurate particulars. Assessment proceedings and penalty proceedings are separate and levying of penalty under section 271(1)(c) and assessing officer is supposed to establish positive concealment. As per explanation to section 271(1) the assessee has offered explanation and assessing officer has not proved that the explanation of the appellant was not bona fide and that all the facts and material to the computation of his total income have not been disclosed by the appellant. Under the circumstances and facts of the case and in the light of various case laws relied upon by the appellant it is not a case of positive concealment of income and therefore penalty levied by the assessing officer is hereby dropped. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0393 (Del-Trib) : (2013) 049 (II) ITCL 0282

INCOME TAX ACT, 1961

--Penalty under section 271(1)(c)--Concealment Ad hoc estimation of income by applying net profit rate--Assessee was a contractor undertaking project of Indian Railways on turnkey basis. A search action under section 132 was carried out. The assessee-company maintains many branches/project offices all over India. assessing officer applied net profit rate @ 11 per cent on the total contract receipts on estimate basis which was reduced to 8 per cent by ITAT. A penalty under section 271(1)(c) was levied. Commissioner (Appeals) deleted the penalty on the ground that the estimation of income by applying flat net profit ratio does not tantamount to concealment or filing inaccurate particulars. Held: On ad hoc estimation of income by applying flat rate of the profit which in no certain terms can be held either as concealment or as filing inaccurate particulars of income penalty under section 271(1)(c), therefore, could not be imposed.

Income Tax Act, 1961, Section 271(1)(c)

Income Tax Act, 1961, Section 145

In the ITAT, Delhi D Bench

R. P. Tolani, J.M. & B.C. Meena, A.M.

Dy. CIT v. Kalindi Rail Nirman Engg. Ltd.

ITA No. 322 (Del) of 2008

A.Y. 2003-04

29 March, 2012

Decision: In assessees favour.

Appellant by : N.K. Chand

Respondent by : R. K. Sharma

ORDER

B. C. Meena, A.M.

This appeal filed by the revenue emanates from the order of Commissioner (Appeals)-I, Jaipur dated 26-10-2007 for the assessment year 2003-04.

2. The assessee is a contractor undertaking project of Indian Railways on turnkey basis. A search action under section 132 of the Income Tax Act was carried out on 14-3-1995. The assessee company maintains many branches/project offices all over India. The assessing officer applied net profit rate @ 11% on the total contract receipts on estimate basis which was reduced to 8% by ITAT vide its order dated 5-9-2002. A penalty under section 271(1)(c) was levied of Rs.24,00,977 on 31-3-2002. The Commissioner (Appeals) deleted the penalty on the ground that the estimation of income by applying flat net profit ratio does not tantamount to concealment or filing inaccurate particulars. The Commissioner (Appeals) granted the relief by holding as under :

'The contention of the Authorised Representative is considered. The Honble ITATs order (DB) was gone through. While fixing profit rate at 8% and subject to allowance of depreciation and interest there on the Honble ITAT has found profit rate of 8% as 'quite reasonable'. The Honble ITAT also observed that the proposal of the assessee for fixing net profit rate of 11 % was a conditional proposal and was a counter offer to the proposal made by the assessing officer which came to be made as appellant at the relevant time was not able to collect information about such contracts or produce those personnel. It was merely to purchase peace and avoid any dispute with the department.

From the record it appears that the assessing officer though made various queries but has not stated basis of its estimation nor gave chance to the appellant to rebut basis of arriving at the application of the presion rate of 11 %. The counter proposal of the assessee was conditional offer as to the allowability fastened with the conduct of the activity. But the assessing officer neither informed the appellant with the proposal so made is acceptable nor he did act in accordance with the offer so made by the appellant. The assessing officer took profit rate at 11 % and allowed depreciation alone leaving interest which was a condition precedent to the proposal of the appellant. The counter offer of the appellant therefore could not be termed as an agreement within the true spirit of well known doctrine of election as it was necessary for the assessing officer to confirm to all the provisions and conditions of the instrument of offer made by the appellant so as to termed it as an agreed assessment or application of rate of profit on agreed basis. Even if the net profit rate taken by the assessing officer is as per the agreement with the appellant it automatically does not tanta amount to concealment of income or furnishing of inaccurate particulars. Assessment proceedings and penalty proceedings are separate and levying of penalty under section 271(1)(c) and assessing officer is supposed to establish positive concealment. As per explanation to section 271(1) the assessee has offered explanation and assessing officer has not proved that the explanation of the appellant was not bona fide and that all the facts and material to the computation of his total income have not been disclosed by the appellant. Under the circumstances and facts of the case and in the light of various case laws relied upon by the appellant it is not a case of positive concealment of income and therefore penalty levied by the assessing officer is hereby dropped.