Law:

Section:

Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 1964-65 - Gross profit shown by assessee in return was according to ITO too low on admitted turnover - ITO rejected accounts on account of certain defects in it and estimated gross profit which resulted in addition - Penalty on that basis was levied under section 271(1)(c) - On appeal, assessee contended that addition was merely for deficiency of gross profit and that it was based on estimate - Tribunal found that finding regarding defective nature of account and suppression of stock was based on mere suspicision and conjectures and thus deleted penalty - Whether explanation given by assessee read in light of facts and circumstances of case was sufficient to warrant conclusion that assessee was not guilty of fraud or gross or wilful negligence in furnishing return - Held, yes - Whether, therefore, Tribunal was justified in deleting penalty - Held, yes FACTS The assessee returned an income of Rs. 44,614 under the head "business". The ITO held that the gross profit of Rs. 1,50,411 on the admitted turnover of Rs 5,60,565 was too low as it worked out only at 24.3 per cent. He found several defects in the accounts and rejected the accounts and estimated the gross profit at 30 per cent which resulted in an addition of Rs. 31,814. The ITO also found that the expenses claimed in the assessee's Bombay branch was Rs. 32,555 during the relevant year even though the increase in turnover was only rupees one lakh over that of the earlier year. He. Therefore, disallowed an amount of Rs. 15,000 out of Rs. 32,555 claimed as the expenditure in the Bombay branch. The total income of the assessee was computed at Rs. 92,010. As the income returned was less than 80 per cnet of the income assessed, penalty proceedings were initiated under section 271(1)(c). The IAC found that the assessee had not proved that the large difference between the income assessed and the income returned was not due to its wilful negligence or fraud and that the Explanation to section 271(1)(c) was applicable and thus, the IAC imposed a penalty of Rs. 15,000. On appeal, the assessee contended that the…

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