COMMISSIONER OF INCOME-TAX vs. PEASS INDUSTRIAL ENGG.PVT.LTD.

ITR/86/1992HC GujaratGJHC24015434199229 December 2004Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI6 pages
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What were the facts?

The assessee, Peass Industrial Engg. Pvt. Ltd., filed its return for Assessment Year 1975-76 declaring an income of Rs.1,25,210/-. The assessment was finalized at Rs.5,49,170/-. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) due to the significant difference between returned and assessed income. The CIT(Appeals) partially reduced the assessed income to Rs.3,15,080/-, and further adjustments by the Tribunal and under Section 154 resulted in a final assessed income of Rs.2,04,104/-. The Assessing Officer levied a penalty of Rs.1 lac under Section 271(1)(c), holding that the Explanation to the section was applicable and the assessee failed to discharge the onus. The CIT(Appeals) confirmed the penalty. The Tribunal, however, cancelled the penalty, finding the assessee's explanations acceptable.

What did the High Court hold?

The Tribunal was justified in deleting the penalty imposed under Section 271(1)(c) read with its Explanation. The Tribunal accepted the assessee's explanations for the four points raised by the Assessing Officer. Specifically, the Tribunal accepted the explanation that goods sold by M/s. Akbarali Nazarali to the assessee were on an approval basis and not recorded in the seller's books on the date of sale. The higher price charged was attributed to quality insistence and rejection option. The issue of a Rs.30,000/- bearer cheque was explained as a partner of M/s. Akbarali Nazarali encashing it and temporarily utilizing funds before booking. The Tribunal found that the balance of probabilities favoured the assessee and that discrepancies in the seller's books were not the assessee's default. Relying on the Supreme Court's decision in Commissioner of Income-Tax Vs. Mussadilal Ram Bharose, the Tribunal concluded that the assessee had discharged the initial burden, and the Revenue had not adduced further evidence to shift the burden back. Therefore, the finding was neither unreasonable nor perverse. Both referred questions were answered in the affirmative, in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the appellate Tribunal has been right in law in deleting the penalty imposed by the Income-tax Officer under section 271(1)(c) read with explanation thereto and sustained by Commissioner of Income-tax (Appeal)? (Question of law) 2. Whether, the finding of the Appellate Tribunal in deleting the penalty imposed under section 271(1)(c) read with explanation thereto is not unreasonable and or perverse? (Question of mixed law and fact) Assessee's arguments: The assessee contended that its explanations regarding the discrepancies were acceptable and that the balance of probabilities was in its favour. The Tribunal accepted these explanations, finding that the assessee had discharged the onus placed upon it by the Explanation to Section 271(1)(c). The Tribunal also held that discrepancies in the seller's books were not the assessee's default. Revenue's arguments: The Revenue argued that the Tribunal erred in holding that the assessee had discharged the onus. The Assessing Officer had pointed out four specific instances leading to a lump-sum addition, and the assessee was required to explain each discrepancy to the satisfaction of the authorities. Failure to do so made the assessee liable for penalty under Section 271(1)(c).

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 256(2),Section 143(3),Section 144B,Section 274,Section 145(1),Section 154

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No.86 of 1992

For Approval and Signature:

HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO Ma

The order continues below.

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