1993 (3) TMI 170 - AT - Income Tax

Summary

Issues:
- Appeal against cancellation of penalty under section 271(1)(c)
- Assessment based on gross profit rate
- Addition of Rs. 1,90,000 due to lower profit shown by assessee
- CIT(A) deleting the addition
- Tribunal's reconsideration and restoration of partial addition
- Dispute over substantiating low trading results
- Interpretation of Explanation 1(B) of section 271(1)(c)
- Justification for imposition of penalty

Analysis:
The case involved an appeal by the Revenue against the cancellation of a penalty under section 271(1)(c) by the CIT(A). The dispute arose from the assessment based on the gross profit rate applied by the IAC (Asstt.) resulting in an addition of Rs. 1,90,000 due to the lower profit shown by the assessee. The CIT(A) deleted the entire addition, citing lack of specific defects pointed out by the IAC (Asstt.) and the presence of floods in the area in 1979. The Revenue appealed to the Tribunal, which reconsidered the matter. The Tribunal observed various deficiencies in the assessee's record-keeping and explanations for low profits. It noted discrepancies in accounts, lack of quality-wise sales details, and absence of specific reasons for the low profit. The Tribunal concluded that the CIT(A) erred in deleting the entire addition and restored an addition of Rs. 1 lac in trading results.

The dispute centered around the assessee's ability to substantiate the low trading results and the application of Explanation 1(B) of section 271(1)(c). The Departmental Representative argued that the Tribunal's finding indicated the assessee's failure to prove the reasons for the income difference, making the penalty applicable. In contrast, the assessee's counsel contended that the explanation for the lower gross profit was plausible and detailed. The counsel highlighted the submission of detailed purchase information and loss details due to floods. The counsel emphasized that the Tribunal's restoration of only a partial addition indicated the validity of the assessee's explanation and opposed the imposition of the penalty.

The Tribunal analyzed the submissions and evidence from both sides. It distinguished previous cases cited by the Departmental Representative, emphasizing the lack of specific findings on concealed income in the current case. The Tribunal noted that the assessee provided a reasonable explanation for the profit decrease, accepted by the CIT(A) and partially by the Tribunal. The Tribunal concluded that the plausible and bonafide nature of the assessee's explanation, coupled with the restoration of only a partial addition, justified the CIT(A)'s decision to cancel the penalty under section 271(1)(c). Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.