1989 (5) TMI 118 - AT - Income Tax

Issues Involved:
1. Cancellation of penalty under section 271(1)(c) of the Income-tax Act.
2. Discrepancies in sales to M/s Lalji Mentha (P.) Ltd. and M/s Ishrat Chemicals.
3. Estimation of sales and gross profit rate.
4. Justification for the imposition of penalty for concealment of income.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty under Section 271(1)(c):
The primary issue was whether the penalty of Rs. 11,658 levied by the Income-tax Officer (ITO) under section 271(1)(c) for the assessment year 1978-79 was justified. The Commissioner of Income-tax (Appeals) [CIT(A)] had cancelled the penalty, noting that the addition was based on estimates and did not warrant a penalty. The CIT(A) observed that the nature of the addition, being related to estimates, did not call for the imposition of any penalty under section 271(1)(c). The Appellate Tribunal upheld this view, stating that normally, penalty could not be levied for additions made on estimates unless it could be shown that an element of concealment was positively involved.

2. Discrepancies in Sales to M/s Lalji Mentha (P.) Ltd. and M/s Ishrat Chemicals:
The ITO found discrepancies in the accounts of M/s Lalji Mentha (P.) Ltd. and M/s Ishrat Chemicals. The assessee had shown advances received from these parties, but the corresponding accounts showed that the transactions were completed, and the accounts were squared up. The ITO concluded that the assessee had concealed sales amounting to Rs. 84,940 and Rs. 27,000 respectively. However, the CIT(A) and the Tribunal later found that these discrepancies were not sufficient to justify separate additions for concealed sales, and they were instead included in the overall estimation of sales.

3. Estimation of Sales and Gross Profit Rate:
The ITO estimated the sales at Rs. 1.70 lakhs and applied a gross profit (G.P.) rate of 22%, leading to an addition of Rs. 14,951 for extra profit. The CIT(A) revised the sales estimate to Rs. 2.50 lakhs and applied a G.P. rate of 20%, resulting in a gross profit of Rs. 50,000. This led to an addition of Rs. 27,552. The Appellate Tribunal upheld this estimation, noting that the discrepancies in sales were addressed through the revised estimation of sales and gross profit.

4. Justification for the Imposition of Penalty for Concealment of Income:
The ITO imposed a penalty for concealment of income based on the discrepancies in sales and the subsequent estimation of higher sales and gross profit. The CIT(A) and the Tribunal, however, found that the explanation provided by the assessee regarding the discrepancies was bona fide and there was no specific material or finding to establish suppression or concealment. The Tribunal noted that the penalty could not be justified merely based on estimates unless there was clear evidence of concealment. The Third Member, while agreeing with the Judicial Member, emphasized that the explanation offered by the assessee was bona fide and there was no material to establish otherwise. The penalty was therefore rightly cancelled by the CIT(A).

Separate Judgments Delivered:
The Judicial Member and the Accountant Member of the Tribunal delivered separate judgments. The Judicial Member held that the penalty was not justified, while the Accountant Member believed that the penalty should be upheld due to the positive evidence of suppressed sales. The matter was referred to the Third Member, who agreed with the Judicial Member, leading to the cancellation of the penalty.

Conclusion:
The appeal by the department was dismissed, and the order of the CIT(A) cancelling the penalty was upheld. The Tribunal concluded that there was no justification for the imposition of penalty under section 271(1)(c) based on the facts and circumstances of the case.

← Previous Next →