1971 (8) TMI 59 - HC - Income Tax

Whether Appellate Tribunal was right in holding that the assessee is not guilty of any fraud or gross or wilful negligence in furnishing the return and in cancelling the penalty under section 271(1)(c) of the Income-tax Act, 1961 question is answered in the aftirmative and against the department

Summary

Issues:
Whether the Appellate Tribunal was right in canceling the penalty under section 271(1)(c) of the Income-tax Act based on the finding that the assessee did not commit fraud or gross negligence in furnishing the return.

Analysis:
The case involved a firm engaged in the business of manufacturing and selling curios made of horn, ivory, and rose-wood. The Income-tax Officer assessed the firm's income for a specific year, finding discrepancies in the accounts and estimating the gross profit at 30% instead of the reported 24.3%. Additionally, expenses claimed for the Bombay branch were disallowed partially. As the income returned was less than 80% of the assessed income, a penalty was imposed under section 271(1)(c) of the Income-tax Act.

The Appellate Tribunal, to which the firm appealed, concluded that the Income-tax Officer's findings were based on suspicions and conjectures. The Tribunal found no evidence to support the claim of stock suppression by the firm. It held that the firm was not guilty of fraud or gross negligence, leading to the cancellation of the penalty.

The Explanation added to section 271(1)(c) shifts the burden of proving lack of fraud or negligence from the revenue to the assessee. The Tribunal considered the explanation provided by the firm, along with the facts and circumstances of the case, sufficient to establish that there was no intentional wrongdoing in the income reporting process.

Ultimately, the High Court upheld the Tribunal's decision, ruling in favor of the firm and against the department. The judgment emphasized that the firm's explanation, coupled with the case details, supported the conclusion that there was no fraud or gross negligence in the return filing. No costs were awarded, and a copy of the judgment was to be sent to the Appellate Tribunal for reference.

In conclusion, the judgment revolved around the assessment of income discrepancies, the imposition of a penalty under the Income-tax Act, and the subsequent cancellation of the penalty by the Appellate Tribunal based on the absence of fraud or gross negligence on the part of the firm. The burden of proof regarding lack of intentional wrongdoing was shifted to the assessee, and the Tribunal's decision was upheld by the High Court based on the firm's explanation and case circumstances.