1976 (12) TMI 71 - AT - Income Tax

Issues Involved:
1. Penalty levied under Section 271(1)(C) of the Income-tax Act, 1961.
2. Discrepancies in the books of account and estimation of income.
3. Filing of revised returns by the assessee.
4. Applicability of Explanation to Section 271(1)(c).
5. Bona fide intentions and inadvertent mistakes by the assessee.
6. Comparison with the case of F.C. Agarwal.

Detailed Analysis:

1. Penalty levied under Section 271(1)(C) of the Income-tax Act, 1961:
The assessee challenged the penalty levied under Section 271(1)(C) for the assessment years 1968-69, 1969-70, and 1970-71. The penalties were imposed by the Inspecting Assistant Commissioner based on discrepancies found in the assessee's books of account and the substantial difference between the income returned and the income finally assessed.

2. Discrepancies in the books of account and estimation of income:
The Income-tax Officer found that the receipts disclosed from various activities like tyre-resoling, welding, and general repairing were not properly accounted for by the assessee for the assessment years 1968-69 and 1969-70. For the year 1970-71, the Officer noted the absence of a bill register or order book and a fall in gross bill collection. Consequently, the Officer estimated gross receipts and expenses to arrive at a higher net income than what was returned by the assessee.

3. Filing of revised returns by the assessee:
Before the assessments were completed, the assessee filed revised returns for each year in question. The revised returns were filed on different dates, showing different figures of total income. The final assessed income was still higher than the income declared in the revised returns, leading to the imposition of penalties.

4. Applicability of Explanation to Section 271(1)(c):
The Inspecting Assistant Commissioner invoked the provisions of Explanation to Section 271(1)(c) on the grounds that the income returned in the original returns was less than 80% of the total income assessed. The Commissioner considered the finally assessed income and the discrepancies found in the books of accounts to justify the penalties.

5. Bona fide intentions and inadvertent mistakes by the assessee:
The assessee contended that the discrepancies were due to inadvertent mistakes and not due to fraud or gross or willful neglect. The revised returns were filed in good faith before the completion of assessments. The assessee argued that the penalties were imposed without considering the last revised returns and the bona fide expenditure disallowed by the Income-tax Officer.

6. Comparison with the case of F.C. Agarwal:
The revenue cited the case of F.C. Agarwal, where the Gauhati High Court upheld penalties due to significant differences between the original and revised returns. However, the Tribunal found that the facts of the present case were different. The revised returns were filed in accordance with Section 139(5) before the assessments were made, indicating bona fide intentions.

Conclusion:
The Tribunal concluded that the penalties levied were far in excess of the assessed income and the returned income. The Inspecting Assistant Commissioner failed to consider the bona fide expenditure disallowed while estimating the total income. The Tribunal accepted the assessee's contention that the differences were due to inadvertent mistakes and not fraud or gross or willful neglect. Consequently, the provisions of Explanation to Section 271(1)(c) were deemed inapplicable, and the penalties were canceled. The appeals were allowed in favor of the assessee.

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