1999 (5) TMI 52 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty under section 271(1)(c) for the first and second periods.
2. Valuation of closing stock and its impact on penalty.
3. Treatment of deposits and cash credits as income from undisclosed sources.
4. Justification of penalty imposition by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The revenue challenged the CIT(A)'s order deleting penalties imposed under section 271(1)(c) amounting to Rs. 44,090 and Rs. 1,92,600 for the first and second periods, respectively. The penalties were related to differences in closing stock valuation and deposits treated as income from undisclosed sources.

2. Valuation of Closing Stock:
During the assessment, differences in closing stock valuations were noted. For the first period, the difference was Rs. 36,536, and for the second period, it was Rs. 1,15,050. The assessee argued that these differences arose due to internal disagreements among partners and insisted on higher theoretical valuations initially, which were later corrected. The CIT(A) observed no quantitative suppression of stocks but a lower G.P. rate, indicating no guilty intent or mala fide actions by the assessee. The books of account were voluntarily produced without erasing cuttings, showing no intent to conceal.

3. Treatment of Deposits and Cash Credits:
The Assessing Officer treated a deposit of Rs. 80,000 and cash credits totaling Rs. 26,000 as income from undisclosed sources, imposing penalties accordingly. The assessee explained that the deposit was a withdrawal from another account and cash credits were genuine, supported by evidence. The CIT(A) found the explanations plausible and deleted the penalties, as the Assessing Officer did not provide sufficient material to prove these amounts as concealed income.

4. Justification of Penalty Imposition:
The Tribunal agreed with the CIT(A) that the penalties were not justified. The assessee's voluntary production of books and revised returns indicated no intent to conceal income. The CIT(A) noted that the revised returns were filed based on an understanding with the Assessing Officer that no penalties would be imposed. The Tribunal concluded that the CIT(A)'s decision to delete the penalties was well-reasoned and justified, as the differences in stock valuation were due to lower G.P. rates rather than suppression of stock.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeals and confirming the deletion of penalties under section 271(1)(c). The explanations provided by the assessee regarding stock valuation differences and deposits were accepted, and no mala fide intentions were found, leading to the conclusion that penalties were not exigible.