Commissioner of Income Tax vs Nepani Biri Company Trust

B.P. Jeevan Reddy, C.J.—u/s 256(2) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal has stated the following question :

"Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal, Delhi Bench, was justified, for the reasons mentioned in paragraph 5 of its order, in cancelling the penalty u/s 271(1)(c) of the Income Tax Act, when the addition of Rs. 96,563 was confirmed in ex parte assessment u/s 144 ?"

The assessee is a Muslim waqf. For the assessment year 1969-70, there was a dispute between the mutawalli and the manager on account of which the accounts of the assessee were not produced before the Income Tax Officer. Each of the two persons claimed that the account books were with another person and were not with either of them. In the circumstances, the Income Tax Officer completed the assessment on the basis of the material on record, i.e., best judgment assessment. While doing so, he disallowed various expenses claimed by the assessee. Ultimately, the assessment was completed on an amount of Rs. 7,30,571 as against Rs. 1,25,456, the income returned.

On appeal, the Appellate Assistant Commissioner deleted the additions to a very large extent. On second appeal, the Tribunal gave further relief. The income of the assessee as finally determined stood at Rs. 2,22,017. The difference thus between the income returned and the income assessed was Rs. 1,36,561. This sum represented various expenses claimed by the assessee but disallowed by the Income Tax Officer. Proceedings for penalty u/s 271(1)(c) of the Income Tax Act were taken. The Inspecting Assistant Commissioner levied a penalty of Rs. 1,90,000 on the assessee. On appeal, however, the Tribunal found that no penalty was leviable inasmuch as there was no concealment of income or willful negligence on the part of the assessee. It opined that certain expenses claimed by the assessee were disallowed by the Income Tax Officer which led to the difference between the income returned and the income assessed and that, in such circumstances, the penalty u/s 271(1)(c) could not be levied. We see no reason to differ from the view taken by the Tribunal which is in accordance with the facts of the case.

In the result, the reference is answered in the affirmative, that is, in favour of the assessee and against the Revenue. No costs.