1977 (4) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Estimated addition to the trading account.
3. Discrepancies in the bank account.
4. Non-addition of inadmissible expenses like donation and gift.
5. Application of Section 69 for unaccounted investments.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The primary issue revolves around the imposition of a penalty of Rs. 7,500 on the assessee by the IAC under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1965-66. The IAC found that the assessee had concealed particulars of income or furnished inaccurate particulars thereof. This was based on discrepancies and irregularities found in the books of account, low profit rates, and unrecorded bank transactions.

2. Estimated Addition to the Trading Account:
The ITO added Rs. 16,000 to the trading account due to irregularities in the books of account and a low rate of profit shown by the assessee. The IAC upheld this addition, noting that the books were not maintained properly and contained numerous irregularities. The assessee argued that this addition was made on an estimated basis and could not form the basis for a charge of concealment.

3. Discrepancies in the Bank Account:
The ITO found that several bank transactions were not recorded in the assessee's books of account, leading to an addition of Rs. 18,000. The assessee admitted that these transactions belonged to the firm but claimed that the omission was due to an error by the Accountant. The IAC rejected this explanation, stating that the transactions were unaccounted for and represented concealed income.

4. Non-Addition of Inadmissible Expenses:
The IAC noted that the assessee did not add back inadmissible expenses like donations and gifts amounting to Rs. 1,003 and Rs. 2,400, respectively. The assessee contended that these expenses were shown in the books and disallowed by the ITO, hence there was no concealment. The Tribunal agreed with the assessee, stating that no penalty could be imposed for these amounts as there was no concealment.

5. Application of Section 69 for Unaccounted Investments:
The Tribunal examined whether the addition of Rs. 18,000 could be treated as concealed income under Section 69, which deals with unaccounted investments. The ITO considered the peak credit of Rs. 15,223 as the assessee's investment in unaccounted transactions out of concealed income. However, the Tribunal noted that the transactions occurred before the relevant financial year (1964-65) and concluded that the addition was not valid under Section 69. Consequently, no penalty could be levied for this amount.

Conclusion:
The Tribunal held that the penalty order of the IAC could not be sustained under the given circumstances. The estimated addition of Rs. 16,000 and the addition of Rs. 18,000 for discrepancies in the bank account did not constitute concealment of income. Additionally, the non-addition of inadmissible expenses like donations and gifts did not amount to concealment. The Tribunal canceled the penalty order of the IAC and allowed the appeal in full.