1985 (1) TMI 131 - AT - Income Tax

Summary

Issues:
- Appeal against penalty under section 271(1)(c) for the assessment year 1975-76.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner (Appeals) confirming the penalty under section 271(1)(c) for the assessment year 1975-76. The assessee, engaged in the business of export of garments and handicrafts, had deposits and withdrawals in the bank accounts examined during the assessment proceedings. The Income Tax Officer (ITO) proposed an addition due to excess withdrawals over expenses and investments. The matter was referred to the Income-tax Appellate Tribunal (ITAT), which eventually reduced the addition to Rs. 49,471. The ITO initiated penalty proceedings under section 271(1)(c) for concealment, imposing a penalty of Rs. 39,530, which was upheld by the Commissioner (Appeals). The assessee then appealed, arguing that expenses and investments were explained through a cash flow statement and that the addition was made on an estimate basis without specific concealment. The ITAT held that penalty under section 271(1)(c) was not applicable as the additions were made entirely on an estimate basis, similar to a previous assessment year where penalty proceedings were dropped based on the decision in Anwar Ali's case.

The ITAT found that the assessee had provided a cash flow statement to explain the investments and expenses, reconciling income and expenditure for the relevant period. The ITO and the IAC had differing views on the unexplained expenditure, with the Commissioner (Appeals) reducing the addition. The ITAT upheld the total income of the assessee at Rs. 49,472, confirming the addition of Rs. 39,531. The Tribunal noted that similar additions in a previous assessment year had penalty proceedings dropped based on the decision in Anwar Ali's case, which was applicable to the present case as well. The ITAT held that penalty under section 271(1)(c) was not leviable as the additions were made on an estimate basis, rejecting the cash flow statement of the assessee. The Tribunal relied on the decision in the case of Nanalal Chunilal Kansara to support its conclusion, distinguishing it from the case laws cited by the Departmental Representative.

In conclusion, the ITAT allowed the appeal, holding that the penalty under section 271(1)(c) was not applicable in the present case, as the additions were made on an estimate basis without establishing concealment, similar to a previous assessment year where penalty proceedings were dropped based on the decision in Anwar Ali's case. The Tribunal emphasized the importance of reconciling income and expenditure and the relevance of providing explanations through documentation like cash flow statements in such cases.