Law:

Section:

Section 256 (2), read with Explanation of section 271(1)(c) [as it stood prior to 1-4-1976] of the Income-tax Act, 1961 - Reference - Question of fact - For assessment year 1965-66 ITO rejected account books of assessee-firm on ground that sales and expenses were not verified and margin of profit shown was low - As total income returned was less than 80 per cent of income assessed, penalty was imposed under explanation to section 271(1)(c) - Tribunal found that the assessee returned the income on the books of account maintained in the regular course of business and that the difference between the income returned and income assessed arose mainly on account of excess profit, in view of the various defects in the account books and the application of a higher net profit rate on estimated turnover - Tribunal held that it could not be said that in filing the return of income as reflected in the books of account, the assessee was grossly or wilfully negligent, much less fraudulent - Therefore Tribunal deleted penalty - Whether Tribunal's conclusion was one of fact and no question of law arose from its order - Held, on facts, yes FACTS The assessee-flrm was at the relevant time a licence vendor of country liquor. For the assessment year 1965-66, the ITO rejected its account books on the ground that sales and expenses were not verified and the margin of profit shown was low. The ITO further initiated proceedings under section 271(1)(c). As the total income returned was less than 80 per cent of the assessed income, the case fell within the ambit of the Explanation to section 271(1)(c). Subsequently, the IAC levied penalty under section 271(1)(c). On appeal, the Tribunal found that the assessee returned the income on the books of account maintained in the regular course of business and that the difference between the income returned and the income assessed arose mainly on account of excess profit, in view of the various defects in the account books and the application of a higher net profit rate on estimated turnover. The Tribunal held that if the assessee maintained certain type of books of account and honestly believed the same to be sufficient for the true…

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