1986 (9) TMI 98 - AT - Income Tax

Summary

Issues:
- Confirmation of penalty imposed under section 271(1)(c) of the Income Tax Act by the Appellate Assistant Commissioner (AAC).
- Whether the penalty was justifiable based on the facts of the case and the provisions of the law.
- Discrepancy in the gross profit rate declared by the assessee and the rate determined by the assessing officer.

Analysis:

The appeal before the Appellate Tribunal ITAT Allahabad was directed against the order of the AAC confirming a penalty of Rs. 8,000 imposed by the Income Tax Officer (ITO) under section 271(1)(c) of the Income Tax Act for the assessment year 1975-76. The ITO initiated penalty proceedings against the assessee, alleging that the books of account did not reflect the true state of affairs, leading to concealment of income by the assessee. The ITO relied on the Explanation to section 271(1)(c) and the case law of Durga Dutta Chimanlal vs. CIT, Lucknow to levy the penalty.

Upon appeal, the AAC upheld the ITO's findings, prompting the assessee to approach the Tribunal. The authorized representative for the assessee argued that the penalty was unjustified as the addition in the quantum was based on estimates and the rejection of account books was not in accordance with the law. The representative cited case law to support the contention that there was no gross or willful neglect on the part of the assessee.

The departmental representative, on the other hand, argued that the penalty was warranted even if the income was assessed based on estimates. The department contended that the assessee's failure to maintain a stock register hindered the accurate determination of profits, justifying the penalty. The departmental representative also highlighted the burden on the assessee to prove that income was not concealed, citing relevant case law.

After considering the submissions and evidence presented by both parties, the Tribunal found that the rejection of the book version and the determination of profit at 5% did not automatically imply fraud or neglect on the part of the assessee. The Tribunal emphasized that the mere rejection of account books did not establish concealment. Citing the case of K.L. Mangal Sain and a circular issued by the CBDT, the Tribunal concluded that the small discrepancy in the income shown and assessed did not warrant a penalty under section 271(1)(c).

Ultimately, the Tribunal held that the burden of proving concealment had been discharged by the assessee, while the department failed to provide sufficient evidence of concealment. As a result, the Tribunal allowed the appeal, overturning the penalty imposed and directing for a refund if the penalty had been paid.