1992 (5) TMI 81 - AT - Income Tax

Summary

Issues Involved:
1. Discrepancy in closing stock.
2. Addition of Rs. 5,04,000 to the total income.
3. Initiation and dropping of penalty proceedings under section 271(1)(c).
4. Invocation of section 263 by the Commissioner.
5. Fresh assessment and repeated addition.
6. Re-initiation and imposition of penalty in the second round.
7. Validity and legality of the penalty order.

Detailed Analysis:

1. Discrepancy in Closing Stock:
The Assessing Officer (AO) found a discrepancy in the closing stock of the assessee, a partnership firm running a re-rolling mill. The AO noted a difference of 125.941 M.T. between the stock recorded in the "Unofficial stock book" and the RGI Register, concluding that this represented unaccounted stock. The assessee argued that the discrepancy was due to rerolled angles produced for others, which were not included in the RGI Register.

2. Addition of Rs. 5,04,000 to the Total Income:
The AO added Rs. 5,04,000 to the assessee's total income, valuing the unaccounted stock at Rs. 4,000 per M.T. This addition was based on the difference in closing stock and was intended to reflect a more realistic wastage percentage.

3. Initiation and Dropping of Penalty Proceedings under Section 271(1)(c):
Initially, the AO initiated penalty proceedings under section 271(1)(c). However, after the assessee provided a reconciliation of figures and explanations, the AO dropped the penalty proceedings on 15-5-1985.

4. Invocation of Section 263 by the Commissioner:
The Commissioner of Income-tax (CIT), Coimbatore, invoked section 263, finding the original assessment order erroneous and prejudicial to the interests of the revenue. The CIT directed a de novo assessment, instructing the AO to collect details from the Sales-tax and Central Excise Departments.

5. Fresh Assessment and Repeated Addition:
In the fresh assessment made on 27-3-1989, the AO repeated the same addition of Rs. 5,04,000 without making any new additions. The penalty proceedings were re-initiated under section 271(1)(c).

6. Re-initiation and Imposition of Penalty in the Second Round:
In the second round of penalty proceedings, the AO did not accept the assessee's explanations and imposed the maximum penalty of Rs. 6,52,624, which was later reduced to Rs. 3,26,312 by the CIT (Appeals).

7. Validity and Legality of the Penalty Order:
The Tribunal examined whether the second round of penalty proceedings was valid, given that the first round had been dropped. The Tribunal noted that the original penalty proceedings were not specifically set aside and that assessment and penalty proceedings are distinct. The Tribunal held that the order dropping the penalty in the first round was still binding and that the AO in the second round could not ignore this order. The Tribunal concluded that the penalty order in the second round was invalid and canceled the penalty of Rs. 3,26,312.

Conclusion:
The Tribunal allowed the assessee's appeal, canceling the penalty imposed under section 271(1)(c) and emphasizing the distinction between assessment and penalty proceedings. The Tribunal also highlighted the importance of considering reconciliations and explanations provided by the assessee in the first round of penalty proceedings.