Law: Income Tax Act, 1961

Section: 271,271(1)(c)

Indian Income Tax Act, 1961---Section 271(1)(c)---Penalty---Concealment of income---Account books rejected being defective---Income estimated by applying flat rate---Assessee not guilty of fraud or gross or willful neglect---Whether penalty leviable---Held no. Case relied on:- Commissioner of Income Tax v. Harnam Singh 8: Co. (1977) 106 l.T.R. 291. Case distinguished:-- Commissioner of Income Tax v. Swatantra Confectionary Work (1976) 104 I.T.R. 291. JUDGMENT (The judgment of the Court was delivered by GULATI J.]-The assessee is a registered partnership firm engaged in the business of cloth. For the assessment year 1968-69, it declared an income of Rs. 14,642. The Income Tax Officer found that the assessee's accounts were defective. He, accordingly, computed the total income at Rs. 21,650 by assuming a flat rate of profit of 7.5 per cent to the wholesale and 12.5 per cent. to the retail sales. As the income returned was less than 80 per cent. of the income assessed he initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 (herein after referred to as "the Act"). As the minimum imposable penalty exceeded Rs. 1,000, the case was referred to the Inspecting Assistant Commissioner of Income Tax as required by the proviso to section 274(2) of the Act. Before the Inspecting Assistant Commissioner it was represented on behalf of the assessee that he had not committed any concealment of income and his profit was less because he was a wholesale dealer. It was also pleaded that in any case the assessee had not been guilty of any fraud or gross or wilful neglect and, as such, no penalty is called for. The Inspecting Assistant Commissioner of Income Tax did not accept the assessee's claim that he was a wholesale dealer and held that the gross profit of 7 per cent. disclosed by it was ridiculously low and as the sales, purchases and closing stocks were not verifiable, the assessee had not accounted for its entire transactions in books of accounts and, as such, was guilty of concealment under section 271(i)(c) of the Act. He, accordingly, levied a penalty of Rs. 7,010, an amount equal to the concealed income. On appeal, the Income Tax Appellate…

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