1976 (5) TMI 39 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Alleged suppression of sales and purchases by the assessee.
3. Applicability of the Explanation to Section 271(1)(c).
4. Burden of proof and onus regarding concealment of income.
5. Assessment of whether the mistake was bona fide or intentional.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The Income Tax Officer (ITO) imposed a penalty of Rs. 21,000 under Section 271(1)(c) on the assessee for concealing particulars of income. The Appellate Assistant Commissioner (AAC) confirmed this penalty, stating that the material collected during the assessment proceedings was sufficient to uphold the penalty. The AAC emphasized that the onus was on the assessee to prove that the mistake was honest, which the assessee failed to do. The AAC noted, "The assessee has wrongly totalled both the debits and the credit sides so as to suppress the gross profit by Rs. 20,993."

2. Alleged Suppression of Sales and Purchases by the Assessee:
The ITO found discrepancies in the sales and purchases figures declared by the assessee. The assessee declared sales of Rs. 4,40,611 and purchases of Rs. 4,29,928, whereas the ITO assessed sales at Rs. 6,61,453 and purchases at Rs. 6,29,878. The ITO concluded that there was suppression of profits and completed the assessment on a total income of Rs. 41,170.

3. Applicability of the Explanation to Section 271(1)(c):
The Departmental Representative argued that the Explanation to Section 271(1)(c) was applicable since the returned income was less than 80% of the assessed income. However, the Tribunal noted that neither the ITO nor the AAC invoked the Explanation during the penalty proceedings. The Tribunal cited the case of CIT vs. Nav Bharat Automobiles, where it was held that the Explanation could not be applied if it was not invoked during the initial proceedings. The Tribunal stated, "We do not permit the Revenue to take the plea that Explanation to s. 271(1)(c) of the Act may be applied in the present case."

4. Burden of Proof and Onus Regarding Concealment of Income:
The Tribunal emphasized that the burden of proof to establish concealment of income lies with the Department when the main section of 271(1)(c) is applied. The Tribunal referred to the Supreme Court's decision in the case of Anwar Ali, which held that the Department must establish that the disputed amount was income and that the assessee consciously failed to disclose it. The Tribunal observed, "The learned AAC did not say that in the present case Explanation to s. 271(1)(c) of the Act is applicable. The learned AAC only applied the main s. 271(1)(c). Under these circumstances, he wrongly placed burden on the assessee."

5. Assessment of Whether the Mistake was Bona Fide or Intentional:
The assessee consistently maintained that the mistake in totalling was due to an error by the Munim (accountant) and was not intentional. The Tribunal noted that the ITO did not challenge the explanation provided by the assessee during the penalty proceedings. The Tribunal found that the explanation given by the assessee was reasonable and consistent with the facts and circumstances of the case. The Tribunal stated, "If we view the explanation of the assessee in the context and in view of the facts and circumstances of the case, as discussed above, in our opinion, there could not be any doubt that the mistake in the totalling was a bonafide mistake and it was not intentional."

Conclusion:
The Tribunal concluded that no penalty under Section 271(1)(c) was leviable either under the main section or the Explanation thereto. The Tribunal allowed the appeal and cancelled the impugned penalty order, stating, "In the result, the appeal is allowed and the impugned penalty order is cancelled."