Naresh Chand Agarwal v. CIT

INCOME TAX ACT, 1961

--Penalty under section 271(1)(c)--ConcealmentAd hoc estimation of income by applying net profit rate after rejecting books of account--Assessee, submitted that the audit report, profit and loss account; and balance-sheet were filed, but AO has rejected the books of account and made the addition on estimate basis being inspired from section 44AD, where the net profit rate was estimated at 8 per cent, from contract business. AO in his penalty order dt. 28-9-2006, imposed the penalty on two counts, i.e., firstly, additions were made in the income of assessee after rejection of book results and the net profit rate was fixed at 8 per cent, on the total turnover. Secondly, interest on FDRs was treated as a 'income from other sources' and the same was upheld by appellate authorities. Held: In the present case, nothing was concealed by the assessee. It was the AO who had rejected the books of account in the second round and applied the 8 per cent, net profit rate prescribed under section 44AD. In the instant case, the turnover was more thus than 40 lakhs, so section 44AD was not applicable, none the, less the AO was inspired with the provision of section.44AD and made the addition by estimating the net profit rate, at 8 per cent. When the addition was made on estimate basis, no penalty under section 271(1)(c) of jthe IT Act could be imposed as per the ratio laid down in the case of ClT v. Arjun Prasad Ajit Kumar (2008) 214 CTR (All) 355. Moreover, it may be mentioned that no finding of deliberate concealment of income was brought in the instant case as the assessee has never suppressed the interest income from FDRs. Interest income from FDRs was duly shown. It was for the AO to treat this income as business income or income from other sources and the same was upheld by appellate authorities. But the fact remains that there was no concealment on the part of assessee. So, no penalty for concealment was leviable.