1985 (7) TMI 64 - HC - Income Tax

Summary

Issues:
1. Assessment of income and undisclosed sources.
2. Penalty imposition under section 271(1)(c) of the Income-tax Act.

Analysis:

Assessment of Income and Undisclosed Sources:
The case involved a partnership firm engaged in the purchase and sale of iron goods. For the assessment year 1961-62, the Income-tax Officer estimated sales at Rs. 2,50,000 with a gross profit rate of 9%. However, the firm introduced cash credits of Rs. 2,62,688 through telegraphic transfers without satisfactory explanation. The Income-tax Officer added Rs. 82,688 to the firm's income as undisclosed sources. Subsequent appeals reduced this addition to Rs. 25,000. The Tribunal upheld this reduced amount. The firm contended that the basis for the addition was later deleted for subsequent assessment years, but the court found the initial reasons given by the Income-tax Officer to be valid and independent of subsequent assessments. Therefore, the court ruled in favor of the Department and against the firm regarding the addition of Rs. 25,000.

Penalty Imposition under Section 271(1)(c) of the Income-tax Act:
Penalty proceedings were initiated under section 271(1)(c) against the firm due to the income discrepancy. The Inspecting Assistant Commissioner imposed a penalty of Rs. 25,000, which was upheld by the Tribunal. The firm challenged this penalty imposition, arguing that the Explanation to section 271(1)(c) was not appropriately applied. However, the court found that the firm failed to provide a plausible explanation despite ample opportunity, leading to the unrebutted presumption under the Explanation. The court concluded that there was no basis to rule in favor of the firm in the penalty matter. Consequently, the court answered both questions in favor of the Department and against the firm, upholding the penalty under section 271(1)(c) of the Income-tax Act, 1961.

In summary, the court's judgment upheld the addition of Rs. 25,000 as income from undisclosed sources and the penalty imposition under section 271(1)(c) against the partnership firm.