COMMISSIONER OF INCOME TAX Vs. BALAKRISHNAN V L

JUDGEMENT

(1.) THE assessee was carrying on business in cotton and was running a ginning factory. For the assessment year 1962-63, corresponding to the accounting year ending December 31, 1961, he submitted originally a return on December 31, 1962, showing a total income of Rs. 77,236. Subsequently on June 15, 1963, a revised return was filed showing a total income of Rs. 38,452. THE assessee had a key loan account with the central Bank of India, Coimbatore. THE ITO made a detailed scrutiny of the accounts and found that there were certain discrepancies in the stock as shown in the assessee's books and as declared to its bankers. In these penalty proceedings, we are concerned only with the discrepancies in the key loan account. In the assessee's accounts, the closing stock of Karunganni kapas was shown as 33,273 lbs., whereas as per the statement given to the bank, the closing stock was 1,82,000 lbs., showing a difference of 1,48,727 lbs. On the ground that the assessee would not have declared to the bank such figures of non-existent stock and that the bankers also would not have accepted such declaration if such stocks were not really available with the assessee; the ITO did not accept the plea of the assessee that the difference was due to variation in the estimate of the loose kapas. THE ITO accordingly added a sum of Rs. 84,960, which represented the value of the surplus stock. THE AAC and the Tribunal upheld the addition of this sum of Rs. 84,960 in the quantum appeal.

(2.) IT may be mentioned at this stage that there were two other addition of Rs. 50,000 and Rs. 86,260 in respect of open loan account. Penalty proceedings were taken in respect of the addition of the amounts relating to these accounts, namely, Rs. 50,000 and Rs. 86,260 in respect of open loan account and Rs. 84,960 in respect of the key loan account. A penalty of Rs. 40,200 which is equivalent to 100 per cent. of the tax relatable to the addition of Rs. 50,000 and a sum of Rs. 68,800 which represented per cent. of the tax relatable to the addition of the remaining two items totalling Rs. 1,71,200 were imposed by the IAC. When the appeal against the penalty proceedings was pending before the Tribunal, the AAC in the quantum appeal directed the deletion of the addition of Rs. 50,000 as well as the addition of Rs. 86,260 and those deletions were also sustained by the Tribunal. Therefore, the Tribunal considered the question of imposition of penalty only with reference to the addition of Rs. 84,960 in respect of the key loan account which was sustained by it in the quantum appeal.

(3.) THE facts in the decisions above cited are very similar to the facts of the case on hand and we find that no other view than that taken by the Tribunal is possible in this case. As already stated, the explanation of the entries in the key loan account did not reflect the actual stock and that they were mere entires made as a result of accommodation given by the bank. Though this explanation was found not acceptable, there was no evidence available either relating to the actual purchase or the sale of any stock said to have been suppressed. In fact, even the department did not seem to have verified with the bank as to whether they have actually verified the stock at any stage. In the circumstances, therefore, we cannot say that the Tribunal went wrong in holding that the penalty is not penalty is not imposable on the first ground mentioned earlier.