The Income Tax Appellate Tribunal (ITAT) Chandigarh Bench ruled that no penalty should be levied on profit rate of 8% estimated upon gross receipts as per provision of Section 44AD of Income Tax Act, 1961.
When a search action was carried out in the premises of assessee N.B. Builders & Promoters (P) Ltd, it was found that the assessee company has maintained several bank accounts in Federal Bank, in the name of its employees/laborers and the amount credited in this bank account have not been shown by the company in its turnover.
Director of the assessee company and in his statement recorded on oath under section 131(1A) Income Tax Act admitted that the cash withdrawal made from these bank accounts should have ideally been part of the turnover of the company and that he shall be revising the return of income of the assessee company.
Subsequently, in response to notice under section 153A, the assessee company filed its return of income showing an income of Rs. 7,12,660/- as against original returned income of Rs. 3,15,860/- under section 139(1) income Tax Act.
Thereafter, the AO framed assessment order and pointed out that the assessee has deposited gross receipts in the bank account of its employee/laborers and in the return of income.
The assessee has shown net profit of Rs. 3,96,800/- on these transactions @ 8%. It was stated by the AO that the assessee has not furnished complete details of the expenses claimed by it against these receipts along with bills and vouchers, thus, the profit rate of 8% was not found justifiable.
Further, the AO issue show cause notice and said that profit rate of 12% may not be applied instead of 8% applied by the assessee in the return filed under section 153A of the Income Tax Act without producing complete bills & vouchers.
In absence of any explanation furnished by the assessee, AO made addition along with imposing penalty.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] who upheld the penalty. Thus, the assessee filed a second appeal before the tribunal.
Before the bench, Tej Mohan Singh,counsel for assessee submitted that return of income filed under section 153A, the assessee has declared a reasonable and generally accepted net profit rate of 8% drawing support from the provisions of Section 44AD of the Income Tax Act even though the net profit as per the Profit and Loss Account was declared @ 3.16%.
Moreover, the AO based on surmises and conjectures that the profit rate is quite low and made the addition without any basis.
Further It was submitted that the lower gross profit could be a reason for making an inquiry or for making the addition, however the same could not be a basis for levy of penalty for concealment of income.
Akashdeep, the counsel for Revenue, supported the orders of the lower authorities.
It was observed by the tribunal that CIT(A) has failed to consider the Explanation 5A which is applicable for the search proceedings initiated on or after 01.06.2007.
Hence, the assessee case is not covered by the said explanation especially where the assessee has pleaded that it has filed its return under Section 153A Income Tax Act and disclosed the income and paid taxes voluntarily though after the date of search.
After reviewing the facts and submission, the two member bench of the tribunal comprising Vikram Singh Yadav (Accountant Member) and Aakash Deep Jain (Vice President) allowed the appeal filed by the assessee and and remand the matter to file of CIT(A).
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