COMMISSIONER OF INCOME-TAX vs BEST SUPPLY AGENCY

1. K.A. THANIKKACHALAM, J.---In these three tax case petitions, the Department requests this Court to direct the Tribunal to refer the following two questions for the assessment years 1986-87 and 1988- 89 for the opinion of this Court under section 256(2) of the Income Tax Act, 1961: .Assessm ent year 1986-87: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalty of Rs.4,40,185 levied under section 271(1)(c) of the Income-tax Act?"

2. Assessm ent year 1988-89: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalty of Rs.4,85,336 levied under section 271(1)(c) of the Income-tax Act?"

3. The assessee is a registered firm carrying on business as a wholesale dealer in engineering cutting tools. For the assessm ent year 1986-87, originally the return was filed on March 24, 1987, showing an income of Rs.2,21,575. The assessm ent was completed on November 26, 1987, on a total income of Rs.12,41,700. Subsequently when the assessment for the assessment year 1987-88 was taken up, the Income-tax Officer called for certain details including transactions of the assessee with Addison & Co. The assessee wrote a letter dated February 16, 1989, stating that they have noticed certain discrepancies in the accounts and they will be filing a revised return and requesting the Income- tax Officer not to initiate penalty proceedings. On March 29, 1989, the assessee again wrote to the Income-tax Officer stating that the discrepancy has been located and stated that there was a difference of Rs.17,26,577 to be credited to Addison and Company, which had to be spread over the assessm ent years 1986-87 and 1987-88. Consequently, a revised return was filed for the assessm ent year 1986-87 showing an additional income of Rs.8,96,992. In 'the meanwhile, the Income-tax Officer had recorded his reasons on March 31, 1989, for reopening the assessment and issued a notice under section 147 on the same date. The revised return was filed on April 28, 1989, and the reassessment was made on that basis on October 18, 1989. The Income-tax Officer also initiated penalty proceedings under section 271(1)(c). The assessee filed an Explanation, dated November 20, 1989, stating that the discrepancy arose only out of some mistakes in the accounts and since the accountant, who was responsible had also died, the penalty proposed should be dropped. The Income-tax Officer, however, took the view that there was a concealment of income and imposed penalty of Rs.4,40,185. On appeal, the Commissioner of Income-tax (Appeals) confirmed the imposition of penalty.

4. Before the Tribunal on appeal, the assessee contended that there was mistake in the total in the ledger and the mistake when discovered had been made good by the assessee by filing the revised return. There were bona fides on the part of the assessee in producing all the books before the Income-tax Officer and the Department had also accepted the fact that the interest charged under section 215 had been waived. The accountant who was in charge of the accounts died on February 17, 1986, and, therefore, the assessee was not in a position to explain how the mistake actually occurred. It was submitted that for the assessment year 1987-88 in which the mistake was actually detected, the penalty proceedings were dropped. Considering all these aspects, the Tribunal was of the view that the penalty under section 271(1)(c) is not exigible for the assessment year 1987-88.

5. In so far as the assessm ent year 1988-89 is concerned, .The return was originally filed on July 29, 1988, showing an income of Rs.3,09,940 when the return was taken for consideration by the Income-tax Officer, a partner of the assessee, Saifuddin Abdul Hussain, appeared before him. He was examined on August 1, 1989. He had produced a register of stock inventory. The total on the last page of the register showed Rs.9,60,136. When it was re-totalled by the Income-tax Officer, the correct total was, found to be Rs.18,84,585. The partner claimed that the mistake was due to the person who maintained the register and agreed to the addition of the difference of Rs.9,24,449. The assessm ent was accordingly completed on August 24, 1989, on that basis. The proceedings for imposition of penalty were initiated. The assessee explained that there was no deliberate omission on the part of the assessee, inasmuch as the mistake was committed by the accountant, Who is now no more. However, the Income-tax Officer levied penalty of Rs.2,32,962. On appeal, the Commissioner (Appeals) confirmed the imposition of penalty. On a further appeal before the Appellate Tribunal, it was contended that the mistake in totalling was due to "thenegligence on the part of the accountant, who is now no more and as soon as the mistake was detected, the assessee offered to' pay the difference. In the earlier assessment , similar circumstances arose and accepting the explanation offered by the assessee, the penalty proceedings, were dropped and therefore for the assessm ent year 1988-89, penalty is 'not leviable under section 271(1)(c) of the Act.

6. Accepting the explanation offered by the assessee, the Appellate Tribunal pointed out that there was no evidence to connect the mistake with the partner of the firm and that there was no attempt on the part of the partner to conceal the income, inasmuch as the actual register was produced for verification. According to the Tribunal, it is not possible to fasten the liability on the part of the partner of the firm. The Tribunal also pointed out that it is not possible to consider the addition as a deemed concealment. Therefore, the Tribunal cancelled the penalty on the view that penalty was not exigible.

7. Inasmuch as the conclusion of the Tribunal was arrived at on the facts of the case, we consider that no referable question of law arises. Accordingly, the tax case petitions are dismissed. . '