Commissioner of Income Tax vs Harnam Singh and Co.

R.L. Gulati, J.—This is a reference u/s 256(1) of the income tax Act, 1961, at the instance of the Commissioner of Income Tax, Lucknow, on the following question:

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified legally in cancelling the order of penalty passed u/s 271(1)(c) of the Income Tax Act, 1961 ?"

The assessee is a registered firm. It filed its return for the assessment year 1964-65 and produced accounts in support of the return. The accounts were not found to be properly maintained and were rejected. The income was enhanced from Rs. 21,452 to Rs. 52,621. The Inspecting Assistant Commissioner of Income Tax imposed upon the assessee a penalty of Rs. 5,000 u/s 271(1)(c) of the Income Tax Act, 1961. The Income Tax Appellate Tribunal has set aside the penalty order. The Commissioner is aggrieved ; hence this reference.

u/s 271(1)(c) read with the Explanation, an assessee is liable to penalty for concealment if the income returned by him is less than 80 per cent. of the income assessed unless he proves that the difference in the income returned and in the income assessed is not due to any fraud or gross or willful neglect on his part. In the instant case, the Income Tax Appellate Tribunal found that the enhancement in the assessee''s income was made because the profit shown by the assessee was only 5 per cent. of the sales which was considered by the Income Tax authorities to be rather low. On that ground the books were rejected and profit was assessed by applying a rate of 12 1/2% per cent. In the opinion of the Tribunal such a case did not attract the provisions of Section 271(1)(c) because the enhancement could not be said to be due to fraud or willful neglect on the part of the assessee. This, in our opinion, is a finding of fact and based, as it is, on relevant considerations cannot be said to be vitiated. Moreover, no separate question has been raised challenging the finding of the Income Tax Appellate Tribunal on this point. In the circumstances, the question as referred to us has to be answered against the department because, in our opinion, the same is concluded by a finding of fact recorded by the Tribunal.

We, accordingly, answer the question in the affirmative, in favour of the assessee and against the department. The assessee is entitled to costs which we assess at Rs. 200.