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Issues:
- Appeal against penalty under s. 271(1)(c) for under-valuation of closing stock and disallowance of salaries. Detailed Analysis: 1. The assessee appealed against a penalty of Rs. 31,000 imposed by the IAC for a default under s. 271(1)(c) for the assessment year 1970-71. The penalty was imposed for under-valuation of closing stock and disallowance of salaries claimed. 2. The assessee contended that the Explanation in s. 271(1)(c) should not apply as there was a mistake in showing the net income after deducting the firm's tax. The disclosed income was Rs. 88,855, higher than the income finally determined, making the Explanation inapplicable. 3. The tribunal agreed with the assessee's submission, stating that the income disclosed was higher than the income finally determined, rendering the Explanation in s. 271(1)(c) inapplicable in this case. 4. Regarding the leviability of penalty under the main provisions, the tribunal found that penal provisions were not properly attracted in the assessee's case. The IAC incorrectly calculated the penalty based on the difference between the income assessed and the income returned, which was a mistake as per the law. 5. The penalty was also imposed for under-valuation of closing stock. The assessee argued that the valuation was based on market value, not a fixed value from the books of accounts. The tribunal found that the difference in valuation was minimal and not a basis for levying a penalty. 6. In terms of salaries, the tribunal noted two items: salaries paid to partners and to other individuals. The tribunal found that in the case of partners, no penalty could be levied as the claim was rejected based on interpretation of the IT Act. For the remaining salary item, the disallowance was upheld as the expenditure could not be proved to have been incurred for business reasons, thus penalty was not leviable. 7. Ultimately, the tribunal concluded that the penalty was not correctly imposed and quashed it, allowing the assessee's appeal. 8. Consequently, the appeal was allowed, and the penalty of Rs. 31,000 was quashed.
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