COMMISSIONER OF INCOME TAX Vs. SANKARSONS AND COMPANY

JUDGEMENT

(1.) THIS is a reference at the instance of the Commissioner of Income-tax under Section 256(1) of the Income-tax Act; and the question of law referred is :

(2.) THE assessee is a firm doing business in the manufacture and sale of horn, ivory and rose-wood curios. For the assessment year 1964-65--the relevant previous year being the year ended March 3-1, 1964--the assessee returned an income of Rs. 44,614 under the head "business". THE Income-tax Officer held that the gross profit of Rs. 1,50411 on the admitted turnover of Rs. 5,60,565 was too low as it worked out only at 24.3%. He found several defects in the accounts and rejected the accounts and estimated the gross profit at 30% which resulted in an addition of Rs. 31,814. THE Income-tax Officer 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% of the income assessed, penalty proceedings were initiated under Section 271(1)(c) of the Income-tax Act. After giving an opportunity to the assessee to show cause why a penalty should not be imposed the Inspecting Assistant Commissioner 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 imposed a penalty of Rs. 15,000. THE assessee filed an appeal before the Appellate Tribunal from the order and contended that the addition of Rs. 31,814 was merely for deficiency of gross profit, that it was based on estimate and that the rejection of the assessee's books of accounts was based on mere suspicion and surmise. It was also contended that the disallowance of a sum of Rs. 15,000 out of the expenditure incurred at the Bombay branch could hardly be taken as a circumstance to infer suppression or concealment of income. THE Tribunal found that the finding regarding the defective nature of the account and suppression of stock was based on mere suspicions and conjectures, and that the reasons given by the Income-tax Officer for his conclusion that the assessee had suppressed stock to a large extent was not supported by any evidence. THE Tribunal, therefore, found that the assessee was not guilty of any fraud or gross or wilful negligence. It, therefore, cancelled the order imposing the penalty.

(3.) WE think that the explanation given by the assessee read in the light of the facts and circumstances of the case was sufficient to warrant the conclusion that the assessee was not guilty of fraud or gross or wilful negligence in furnishing the return.