1983 (9) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Liability of the assessee for penalties under section 271(1)(c) of the Income-tax Act, 1961 for the assessment years 1972-73, 1973-74, and 1974-75.

Detailed Analysis:

1. Liability for Penalties under Section 271(1)(c) for the Assessment Years 1972-73, 1973-74, and 1974-75

Background and Initial Returns:
The assessee, engaged in the manufacture of handlooms, filed returns for the assessment years 1972-73, 1973-74, and 1974-75 on 3-10-1974. For 1972-73 and 1973-74, the returns were based on estimates (Rs. 9,000 and Rs. 7,920 respectively) without maintaining account books. For 1974-75, the return showed an income of Rs. 15,830, accompanied by a profit and loss account and a trial balance.

Scrutiny and Detection of Omissions:
The Income Tax Officer (ITO) scrutinized the account books for 1974-75 and found that sales for November 1973 were not credited to the sales account. The ITO impounded the books for further scrutiny and noted discrepancies in the sales ledger.

Revised Returns and Correspondence:
On 22-7-1975, the assessee filed revised returns showing higher incomes for all three years (Rs. 35,000, Rs. 33,920, and Rs. 45,000 respectively). The revised returns included adjustments for unrecorded sales, deficit claims in wages, and valuation of closing stock. The assessee explained these omissions as bona fide errors in subsequent correspondence with the ITO, emphasizing that the omissions were not intentional.

ITO's Assessment and Penalty Proceedings:
The ITO completed the assessments based on the revised returns but added amounts for personal expenses. Penalties under section 271(1)(c) were levied (Rs. 30,000 each for 1972-73 and 1973-74, and Rs. 35,000 for 1974-75), citing suppression of sales and discrepancies in accounts.

Commissioner (Appeals) Decision:
The Commissioner (Appeals) confirmed the penalty for 1974-75, citing deliberate understatement of income, but deleted the penalties for 1972-73 and 1973-74. The Commissioner reasoned that the original returns for these years were estimates and the revised returns were filed voluntarily before any inquiry by the ITO.

Arguments and Tribunal's Findings:
The assessee argued that the omissions were bona fide mistakes and that the revised returns were filed voluntarily upon discovering these errors. The departmental representative contended that the revised returns were not voluntary and cited various case laws to support the imposition of penalties.

The Tribunal concluded that the omissions were clerical errors and not deliberate concealment. The assessee's subsequent conduct in rectifying the errors and revising the returns indicated a bona fide attempt to correct the mistakes. The Tribunal emphasized that the basis for the assessments was the accretion to net wealth, which was accepted by the ITO. The Tribunal found no justification for penalties under section 271(1)(c) for any of the three assessment years.

Conclusion:
The Tribunal upheld the deletion of penalties for 1972-73 and 1973-74 and cancelled the penalty for 1974-75, dismissing the revenue's appeals and allowing the assessee's appeal. The Tribunal highlighted that the case involved bona fide errors and not deliberate concealment of income.