1982 PLP 71 (PTD)

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. M. L. Verma with S. Mukherjee for the Commissioner. A. K. Srivastava for the Assessee. 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 you and offer to be assessed to the best of your judgment, keeping in view the fact that no sane business man will like to turn, white money into black money especially when he is in short of funds." The letter added that the sum of Rs. 24,000 could be added to the income but it was requested that a lenient view may be taken in the imposi tion of penalty. On August 7, 1965 the partner of the assessee‑firm also gave a statement expressing the inability of the assessee to produce the supplier for want of his complete address. In the above circumstances, the sum of Rs. 24,000 was disallowed and added back in the assessment and this was also confirmed up to the stage of the Tribunal. Consequent upon the above assessment penalty proceedings under section 271(1) (c) were initiated. The I. A. C., by an order dated November 13, 1967, imposed a penalty of Rs. 5,000 observing that the assessee's surrender of the amount for addition was not voluntary and that this was a case for the levy of penalty. However, on an appeal by the assessee, the Tribunal after referring to the decision of this court in C. I.‑T. v. Azad Bharat Finance Co. ((1970) 75 I T R 40), held that a penalty was not leviable in view of the following circumstances "The G. P. rates shown and accepted in the part ranged between 24 % and 25 % whereas in the year under consideration it came to about 26 %. The addition of Rs. 24,000 raises the G. P. rate to 32.5 % (wrongly mentioned as 25.5 % in the order) ; (ii) The ratio of nickel consumption to castings done was broadly the same in comparison with that of earlier years ; (iii) The alloy of which chucks are made, necessarily entails addition of a minimum quantity of nickel for imparting to the alloy the minimum toughness expected. (iv) Though the kabari was not produced, some katcha vouchers were available. At best the purchase is not proved ; it cannot be said that the purchase has been disproved by the department ; (v) There is a withdrawal of Rs. 24,000 on the same day for payment against purchase. We are hesitant to say that the amount has been withdrawn and kept at home." The questions of law which have been referred for the opinion of this Court are : "(1) Whether, on the facts and in the circumstances of the case, the decision of the Tribunal is based on evidence, is reasonable and correct in law ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in vacating the penalty order ?" We are of opinion that the conclusion arrived at by the Tribunal that the penalty was not leviable on the facts and circumstances of the present case was a conclusion of fact based on the material on record and that it does not call for any interference in a reference. It is no doubt true that the assessee was not able to produce the person 'who was alleged to have, supplied the huge quantity of nickel required by the assessee for its business purposes. But at the same time, as pointed out by the Tribunal, the entire purchase could not be disbelieved, for the reason that there was nothing wrong with the trading account of the assessee. The ratio of nickel consumption compared favourably with those in earlier years. The alloy position was satisfactory and the gross profit rates shown by the assessee also compared favourably with those of earlier years. In these circumstances, the purchase by itself could not be doubted. If at all, there could be some sort of suspicion that the purchase price had been inflated, but even in regard to that there was no material available on record to show that the purchase price had either been fictitiously debited in the books or had been inflated. The failure of the assessee to produce the kabari only amounts to its failure to strictly prove the purchase. But from this circum stance alone it cannot be inferred that the entire claim or a part of it was untrue or fictitious. Mr. Verma, learned counsel for the Commissioner, invited our attention to the decision of this court in Durga Timber, Works v. C. I. T. ((1971)79 I T R63). But a perusal of the above shows that the facts on which that case was decided were totally different. In that case, the assessee had not only surrendered an amount in respect of which enquiries were initiated but be also admitted that they represented the concealed income of the firm. In the present case all that the assessee stated in his letter dated March 12, 1965, was that he was not in a position to prove the purchase and that therefore, he would submit to the assessment to the best of the judgment of the I.‑T. O. The letter, however, emphasised the improbability of an assessee trying to turn white money into black money especially when he is short of funds. In the letter dated March 12, 1965 itself, the assessee had stated that a lenient view may be taken in the imposition of the penalty which the Tribunal pointed out is also wide enough to mean that the assessee requested that, while it was agreeing to the addition, a penalty should not be levied. In short, this is merely a case where an expense claimed by the assessee bad been disallowed for want of complete proof. There is no other circum stance from which either negligence or default or concealment on the par of the assessee could be inferred. We are, therefore, of opinion that the Tribunal was justified in cancelling the penalty. The questions referred to us, are, therefore, answered in the affirmative and in favour of the assessee. We, however, make no order as to costs. Question answered in the affirmative.