Calcutta H.C : No penalty under the provisions of s. 271(1)(c) read with the Explanation thereto could be levied in the case of the assessee

Sections 256(2), 271(1)(c)

Asst. Year 1964-65

Counsel Appeared

S.K. Mitra, for the Revenue

AJIT K. SENGUPTA, J.:

At the instance of the CIT, West Bengal- II, the following question of law has been referred to this Court under s. 256(2) of the IT Act, 1961, for the asst. yr. 1964-65 :

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that no penalty under the provisions of s. 271(1)(c) read with the Explanation thereto could be levied in the case of the assessee ?”

2. The facts, shortly stated hereinafter are, that the assessee carried on business of printing, publishing and selling newspapers and periodicals known as Daily Basumati, Weekly Basumati and also some other periodicals. For the purpose of its business, the assessee-company purchased paper, ink and other miscellaneous materials. For the asst. yr. 1964- 65, the assessee-company filed a return on 20th Oct., 1964, disclosing a loss of Rs. 1,79,064. The ITO rejected the book result of the assessee and completed the assessment on a total income of Rs. 89,085. The ITO felt that the assessee must have inflated its purchases of paper and miscellaneous materials and disallowed Rs. 1,50,000 on an estimate from the purchases account. The ITO further considered that the assessee must have deflated its sales by disguising some of the sales as distribution of free copies. He, therefore, added Rs. 1,00,000 on estimate towards possible suppression of sales.

It was with reference to the aforesaid inflation of purchases and suppression of sales that proceedings were taken against the assessee-company for imposition of penalty. On a mere consideration of the assessment, it was clearly established that the assessee suppressed its profits both by inflation of purchases and by suppression of sales. He also relied upon the fact that no evidence was produced before him to show that the purchases and sales were correctly recorded by the assessee in its books of account. Invoking the Expln. under s. 271(1)(c) of the IT Act, 1961, the IAC held that the assessee-company failed to discharge the burden of proving that the difference between the returned income and the assessed income did not arise on account of any fraud or gross or wilful neglect on its part. He accordingly found the assessee-company guilty of concealing the correct particulars of its income and levied a penalty of Rs. 27,000 upon the assessee.

The Tribunal, in the order under reference, cancelled the penalty in the following manner : “From a mere perusal of the penalty order, it is abundantly clear that the IAC levied the penalty merely on the basis of the reasons given by the ITO in the assessment order for disallowing Rs. 1,50,000 from the purchase account towards possible inflation of purchases and for adding Rs. 1,00,000 in the trading account towards possible suppression of sales. It was only on estimate that the ITO made the addition towards possible suppression of sales and disallowance towards possible inflation of purchases. We do not think that any inference of fraud or gross or wilful neglect on the part of the assessee could be drawn where additions towards possible suppression of sales or disallowance towards possible inflation of purchases were made in the trading account by the ITO on mere estimate. By merely showing that the additions and disallowances were made in the trading account by the ITO on mere estimate, the assessee can be said to have rebutted the presumption arising from the Explanation under s. 271(1)(c). We are fortified in this view by the decision of the Kerala High Court in CIT vs. Sankarsons & Co. (1972) 85 ITR 627 (Ker) : TC50R.874. Once it is held that the assessee has rebutted the presumption enacted in the explanation under s. 271(1)(c), the ratio of the decision of the Supreme Court in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) : TC50R.276, comes into play. According to that ruling of the Supreme Court, the burden rests upon the Department to prove by cogent and consistent evidence that the disputed amount represents the income of the assessee and that the assessee has concealed the same. In the present case, apart from the fact that the ITO made some additions and disallowances in the trading account on mere estimate, the Department has not proved by any positive evidence that the amounts added and disallowed in the trading account represented the concealed income of the assessee. The penalty levied is, therefore, unsustainable.”

It appears from the order of the CIT(A) that in dealing with the appeal against the quantum assessment, he has set aside the order and directed the ITO to make a fresh assessment in accordance with law in the light of the observations made in the said order. Inasmuch as the assessment has been set aside, it is not necessary for us to go into the merits of the case regarding the validity of the order of imposition of penalty on the assessee. It may be mentioned that none appeared for the assessee before the Tribunal when the Tribunal disposed of the appeal against the penalty.

Having regard to the facts and circumstances of this case as aforesaid, the order of assessment having been set aside, to which our attention has been drawn by the Revenue, it is not necessary for us to go into the merits and to decide the validity of imposition of the penalty in this case. If, in the fresh assessment to be made in terms of the directions of the CIT (A), the ITO detects any concealment of income or particulars thereof, he will be at liberty to proceed in accordance with law.

For the reasons aforesaid, we decline to answer the question in this reference. There will be no order as to costs.

K. M. YUSUF, J.:

I agree.

Decision in favour of Answer Declined.

[Citation :180 ITR 175]