1982 (3) TMI 83 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) for the assessment years 1970-71 and 1971-72.
2. Validity of the penalty order issued by the Inspecting Assistant Commissioner (IAC).

Detailed Analysis:

Assessment Year 1970-71:

1. Income from Undisclosed Sources (Rs. 16,469):
- The Income Tax Officer (ITO) added Rs. 16,469 as income from undisclosed sources due to unexplained purchases covered by cash vouchers not entered in the books.
- The Appellate Assistant Commissioner (AAC) upheld this addition, rejecting the assessee's explanation that the goods were purchased on approval and returned.
- The Tribunal did not interfere with the AAC's decision.
- The IAC concluded that this amount represented concealed income and imposed a penalty.
- The assessee argued that the explanation was merely rejected and cited the Gujarat High Court decision in CIT vs. Vinay Chand Harilal.
- The Tribunal held that the revenue did not conclusively prove the amount related to the previous year and, therefore, the levy of penalty was not justified.

2. Cash Purchases Without Proof (Rs. 6,396):
- The ITO found 31 cash purchases amounting to Rs. 9,987 without memos or vouchers.
- The AAC and Tribunal upheld the addition of Rs. 6,396, concluding these purchases were inflated and bogus.
- The IAC imposed a penalty, and the Tribunal upheld this penalty, stating it was justified due to the inflation of purchases reducing taxable income.

3. Understatement of Closing Stock (Rs. 52,535):
- This amount comprised Rs. 37,535 added by the ITO and Rs. 15,000 estimated as profit by the Tribunal.
- The Tribunal held that the Rs. 15,000 addition was not subject to the ITO's satisfaction for penalty and thus could not be penalized.
- The Rs. 37,535 addition was justified as it represented purchases recorded in the books but not in sales or closing stock.
- The Tribunal upheld the penalty on Rs. 37,535, stating it was an understatement of sales and profit.

Assessment Year 1971-72:

1. Discrepancies in Stock Book and Purchases:
- The ITO found serious discrepancies, including bogus purchases, unrecorded sales, and inflated purchases.
- The ITO estimated a turnover of Rs. 6 lakhs with a GP of 50%, resulting in an addition of Rs. 2,06,754.
- The AAC reduced the GP rate to 35%, and the Tribunal upheld this decision.
- The IAC imposed a penalty of Rs. 1,16,754, concluding the case fell under the Explanation to Section 271(1)(c).

2. Assessee's Appeal:
- The assessee argued that the penalty was not justified as the additions were based on estimated GP and not specific defects.
- The Tribunal held that the addition was not merely due to non-maintenance of records but due to specific discrepancies and manipulations.
- The Tribunal concluded that the assessee's case fell within the mischief of the Explanation to Section 271(1)(c) and upheld the penalty.

Validity of Penalty Order:
- The assessee contended that the IAC's order was defective as it directed the ITO to levy the penalty.
- The Tribunal rejected this contention, stating it was a procedural irregularity and did not affect the penalty proceedings.

Conclusion:
- The appeal for the assessment year 1970-71 was partly allowed, with penalties on Rs. 16,469 and Rs. 15,000 being set aside.
- The appeal for the assessment year 1971-72 was dismissed, and the penalty of Rs. 1,16,754 was upheld.