THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA No.559 of 2010 Dated:04.02.2011 Between: The Commissioner of Income Tax-III, I.T.Towers, A.C.Guards, Masab Tank, Hyderabad. …Petitioner and M/s.Vinayaka Agritech Limited, Hyderabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA No.559 of 2010 ORDER: (per Hon’ble Sri Justice V.V.S.Rao) The respondent, an assessee in Floriculture business, filed return of income for the assessment year 2004-2005. The same was taken up for scrutiny after issuing notice under Section 143(2) of the Income Tax Act, 1961 (the Act). The income was assessed at Rs.5,15,410/- and the tax was calculated at Rs.2,38,951/-. By a separate order the penalty under Section 271(1)(c) of the Act was levied. The order of the Assessing Officer was subject matter of appeal before the Commissioner of Income Tax (Appeals). The appellate authority recorded a finding that the respondent made a deliberate attempt to conceal the income from trading of flowers and also on interest and deposits by deliberately claiming such income as exemption under Section 10(1) of the Act and accordingly confirmed the levy of penalty. The appeal before the Income Tax Tribunal was, however, allowed against which the present appeal is filed under Section 260A of the Act. The Senior Counsel for Income Tax submits that the assessee claimed exemption under Section 10(1) of the Act on the deposits which were shown in the return. This amounts to concealing the taxable income. The learned Tribunal in the impugned order considered this aspect in the following manner. …Firstly, it needs to be appreciated that all the particulars from which income has to be determined are on record. Secondly, when the Assessing Officer noticed that the purchase of flowers were to the tune of Rs.30.59 lacs, the assessee furnished the breakup and satisfied the Assessing Officer that actual purchases which were meant for sales amounted only to Rs.14.62 lacs. Thus, it is not a case of inflation of purchases as contended by the learned Departmental Representative. This aspect itself establishes the bonafides of the assessee. Thirdly, the total sales of the assessee amounted to Rs.2.59 crores including export sales of Rs.89.24 lacs. The net profit amounted to Rs.48.44 lacs. Considering this volume of business and profitability, it cannot be the intention of the assessee to conceal a meager income of Rs.3.76 lacs which too is not the correct concealed income, if it can be so called. At best, this appears to be the case of sheer oversight to separate out the trading activity from such a huge volume. Fourthly, yes, there can be a penalty on estimated income. But it can be so only when the estimate is fair and is based on some cogent material on record. In the instant case, the income itself is arrived at on the basis of an arithmetical formula which cannot be considered to be fair. Therefore, on any count, we do not consider this to be a fit case for levy of concealment penalty. We cancel the same. Under Section 271(1)(c) of the Act the Assessing Officer may direct the assessee to pay penalty when any person, “has concealed the particulars of his income or furnished inaccurate particulars of such income”. The recording of satisfaction that the assessee concealed the particulars or furnished inaccurate particulars is condition precedent for levying penalty under the provisions. The Assessing Officer did not record any finding and was carried away by the fact that the assessee claimed exemption under Section 10(1) of the Act. The appellate authority inferred that the claim of exemption under Section 10(1) of the Act itself is deliberate attempt to conceal the income. When the exemption is claimed under Section 10(1) of the Act we fail to understand as to how it would amount to concealment. That Section 271(1)(c) of the Act is not always attracted the moment there is allegation of concealment of the income or furnishing of inaccurate particulars, is settled by reason of the decision of the Supreme Court in Commissioner of Income Tax v Eli Lilly and Company (India) P.Ltd[1]. It was held therein as under. …Thus, section 271C(1)(a) makes it clear that the penalty leviable shall be equal to the amount of tax which such person failed to deduct. We cannot hold this provision to be mandatory or compensatory or automatic because under section 273B Parliament has enacted that penalty shall not be imposed in cases falling thereunder. Section 271C falls in the category of such cases. Section 273B states that notwithstanding anything contained in section 271C, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on persons who do not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason… Applying the above principles, we do not find any infirmity in the impugned order of the learned Tribunal. The ITTA is, therefore, dismissed. There shall be no order as to costs. _______________ (V.V.S.RAO, J) _____________________________ (RAMESH RANGANATHAN, J) 04.02.2011 vs [1] (2009) 312 ITR 225 (SC)