Commissioner of Income Tax vs Kartar Singh

Gokal Chand Mital, J.—This Tribunal, Chandigarh Bench, has referred the following question for opinion of this Court :

Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the Inspecting Assistant Commissioner of income tax was not justified in levying penalty under the Explanation to section 271(1)(c) of the income tax Act, 1961 ?

For the assessment year 1972-73 the assessee filed a return on 31-7-1972 declaring the income of Rs. 15,000. During the course of proceedings, the ITO found that the assessee had assessed the value of the closing stock at the rate of Rs. 575 per metric ton whereas it should have been calculated at Rs. 900 per metric ton. In this manner, the ITO was of the opinion that the closing stock was undervalued and added Rs. 34,158 to the total income of the assessee. However, on appeal the addition on account of closing stock was reduced to Rs. 20,034. When the matter came up for consideration before the IAC for imposition of penalty the assessee produced material before him to show that the closing stock was sold in the next year at rates ranging from Rs. 480 to Rs. 595 per metric ton and on this basis claimed that no penalty should be levied. However, the IAC rejected the argument after observing that the same plea had been taken before the Tribunal and had been rejected and imposed penalty of Rs. 22,100. On appeal, the Tribunal cancelled the penalty on the reasoning that although in quantum appeal he was not able to satisfy the Tribunal, he had produced material now to show that the same stock was sold in the next financial year at rates varying between Rs. 480 to Rs. 595 per metric ton and the IAC should have independently considered this material. Accepting the material, the Tribunal cancelled the penalty.

So far as interpretation of the provision of section 271(1)(c) of the income tax Act, 1961 and the Explanation is concerned, the matter is covered by the Full Bench decision of this Court in Vishwakarma Indus tries v. CIT [1982] 135 ITR 652 and a Division Bench judgment in CIT v. Rajeshwar Singh [1986] 162 ITR 173 (Punj. & Har.). The IAC could invoke the Explanation to the facts of the case and even though the initial presumption would be on the assessee which is rebuttable, we are of the opinion that by producing documentary evidence that the closing stock in hand was sold by the assessee at rates varying between Rs. 480 to Rs. 595 per metric ton, the presumption stood rebutted by the evidence led during the penalty proceedings. It is true that certain observations of the Tribunal in regard to the interpretation of section 271(1)(c) and the Explanation are not happily worded, yet on facts there can be no escape from the conclusion arrived at by the Tribunal. Accordingly, we answer the question in the negative, that is, against the revenue and in favour of the assessee that the Tribunal did not err in holding that the IAC was not justified in levying the penalty. However, there will be no order as to costs.