1986 (12) TMI 51 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Deletion of penalty by the Commissioner (Appeals).
3. Jurisdiction to impose penalty post-amendment of section 274(2).
4. Assessment of returned loss versus assessed loss.
5. Applicability of Explanation to section 271(1)(c).

Detailed Analysis:

1. Sustaining of Penalty under Section 271(1)(c):
The assessee appealed against the retention of part of the penalty imposed by the ITO, while the revenue appealed against the deletion of the remaining penalty. The ITO had imposed a penalty of Rs. 5,23,427, which was reduced by the Commissioner (Appeals) to Rs. 22,620. The ITO concluded that the assessee had concealed income due to fraud, gross or wilful neglect by showing a loss of Rs. 9,89,905, which was assessed at a reduced loss of Rs. 4,66,478. The Commissioner (Appeals) agreed that the ITO was wrong in including earlier years' losses and considered only the current year's loss of Rs. 1,62,255, resulting in an addition of Rs. 2,42,019.

2. Deletion of Penalty by the Commissioner (Appeals):
The Commissioner (Appeals) deleted the penalty related to the groundnut and khali account and soap account, reasoning that the additions were based on estimates rather than positive findings of suppression. The Commissioner (Appeals) noted that the ITO's findings were prompted by discrepancies in the production register, which included overwritings and cuttings, but there was no conclusive evidence of suppression of income.

3. Jurisdiction to Impose Penalty Post-Amendment of Section 274(2):
The assessee contended that the ITO, who referred the matter to the IAC, lost jurisdiction to impose the penalty after the amendment of section 274(2) effective from 1-4-1976. The Tribunal referred to the decision in CIT v. Ram Lal Vohra, where it was held that the ITO retained jurisdiction to impose the penalty even after the amendment. The ITO imposed the penalty with prior approval of the IAC, who had jurisdiction at the time of initiation.

4. Assessment of Returned Loss versus Assessed Loss:
The assessee returned a loss of Rs. 9,89,905, which included losses brought forward from earlier years. The Commissioner (Appeals) considered only the current year's loss of Rs. 1,62,255 for penalty purposes. The Tribunal upheld this approach, stating that for the purpose of section 271(1)(c), only the current year's loss should be considered.

5. Applicability of Explanation to Section 271(1)(c):
The Tribunal noted that the initial burden was on the assessee to prove that there was no fraud, gross or wilful neglect. The Tribunal found that the assessee failed to discharge this burden as the ITO's findings were based on discrepancies in the production register and the absence of subsidiary records. The Tribunal reversed the Commissioner (Appeals)'s deletion of the penalty related to the groundnut, khali, and soap accounts, stating that the additions were not merely based on estimates but on specific findings of unaccounted transactions.

Conclusion:
The Tribunal dismissed the assessee's appeal and allowed the revenue's appeal, directing the ITO to re-calculate the penalty based on the observations and directions provided. The Tribunal held that the Commissioner (Appeals) erred in deleting the penalty related to the groundnut, khali, and soap accounts as the assessee failed to discharge the burden of proof under the Explanation to section 271(1)(c). The penalty was to be recalculated considering only the current year's loss and the specific findings of unaccounted transactions.