Law:

Section:

Income tax---Penalty Concealment Assessee manufacturer of lathe chuks¬--Purchase of nickel from Kabari in one lot and debit entry made in account books Assessing Officer disbelieving explanation Failure of assessee to produce Kabari to prove claim Assessee voluntarily agreeing to addition Ratio of nickel consumption, alloy position and gross profit declared by assessee compared favourably with earlier years No evidence that purchase price was inflated in account books ¬Failure to prove purchases Expense claimed disallowed for want of complete proof No negligence or default or concealment Levy of penalty in circumstances, held, not valid in law. C. I. T v. Azad Bharat Finance Co. (1970) 75 I T R 40 ref. Durga Timber Works v. C. L T. (1971) 79 I T R 63 distinguished. JUDGMENT RANGANATHAN, J. This is a reference under section 256 (2) of the I. T. Act, 1961. The assessee firm manufactured lathe chuks at Bahadurgarh. In the course of the examination of accounts for the year 1964 65, the I. T. O. found that a sum of Rs. 24,C00 had been debited in the books of the assessee on November 4, 1963, towards the purchase of Nickel. In support of this entry a katcha chit alleged to have been signed by a kabari was produced before the I. T. O. The I. T. O. could not believe that an ordinary kabari could have had Nickel worth Rs. 24,000 for sale in a lot. So, he called upon the assessee to produce the supplier. The assessee, however, wrote back to the I. T. C. on March 12, 1965, stating : "The purchase bill as well as the stamped. receipt voucher in respect of 2,400 kgs. nickel purchase from Shri Chetan Kabaria has already been submitted to you in original. We can produce the consumption record of the factory in support of the purchase. Unfortunately since we do not have complete address of the person, we are unable to produce him before you. The purchase was made from kabari by chance and were tempted to purchase the same as the item was in short supply and was not available from the normal trade channels and also because our production was suffering for want of this item. Since we cannot prove the purchase conclusively by producing the supplier, we are prepared to submit to…

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