1. These appeals by the assessee have been heard together and are being disposed of by a consolidated order for the sake of convenience. Since, the facts relating to these two appeals coming up before us are rather interesting we record the same first.
2. The assessee is a registered firm working under the name and style of M/s. Goel Book Depot at Saharanpur. It derives income from publication of books and their sale. While making the assessment for the year under appeal, the ITO came across certain purchases out of which he picked up an item of Rs. 10,800 because the payment for it had been made in cash. The assessee was not in a position to give details of the party from whom the purchases had been made but gave the reasons for the payment in cash and the reason for making such a purchase. The reason for making the purchase was that there was a scarcity of paper and the assessee needed it, and, therefore, the cash purchases were made. The ITO held these purchases as bogus and further observed that, "the profits were suppressed by Rs. 10,800 by increasing the purchases". He, therefore, added this Rs. 10,800 to the total income of the assessee as concealed income and also initiated penalty proceedings. It is also noteworthy that in the same assessment year, the ITO rejected the books of account of the assessee and the commercial results shown thereunder. He applied proviso to Section 145(1) and estimated sales at Rs. 2,50,000 as against sales shown at Rs. 2,28,758. The assessee had shown net profit at 16.3 per cent as against 12.9 per cent shown in the immediately preceding assessment year. The ITO, therefore, applied the net profit rate of 16.3 per cent to the estimated turnover of Rs. 2,50,000. Thus, an addition of Rs. 3,432 was made to the trading results. In other words, two amounts were added to the total income, namely, Rs. 10,800 and Rs. 3,432. This assessment was framed Under Section 143(3) on 29-1-1983.
3. This assessment was challenged in appeal before the AAC. The AAC by his order dated 21-11-1983 decided the quantum appeal by deleting the amount of Rs. 3,432 because, in his opinion, the ITO was not justified in making the addition, but he upheld the addition of Rs. 10,800. The ITO in the meantime had proceeded with the imposition of penalty. He asked the assessee to show cause why penalty need not be levied, to which the assessee replied vide letter dated 16-1-1984 that the assessee, "has not concealed any particulars of his income. The profit rate worked has been accepted. The only defect was in paper purchased for Rs. 10,000 was not accepted in view of the fact that payment was made in cash. Simply, because the payment for the purchase has not been accepted, no penalty can be imposed". The ITO considered this reply but rejected it. According to the ITO, on account of Rs. 10,800 being treated as part of the total income of the assessee, the tax sought to be evaded was Rs. 730. According to him, the minimum and maximum penalty imposable worked out to Rs. 730 and Rs. 1,460 respectively. He was of the opinion that the maximum penalty is imposable. Therefore, he imposed the penalty of Rs. 1,460 by his order dated 30th January, 1984 Under Section 27l(1)(iii) of the Income-tax Act, 1961. This penalty order was challenged in appeal before the AAC.4. After imposing the above penalty, the ITO realised that he had not taken into consideration the provisions of Section 271(2) of the Act.
According to this provision, when the person liable to penalty is a registered firm, etc., then notwithstanding anything contained in other provisions of the Act, the penalty imposable shall be same as would be imposable on that firm, if that firm were an unregistered firm. The ITO, therefore, issued a notice to the assessee to show cause why the penalty order made on 30th January, 1984 need not be amended to bring it in accordance with this provision. To this, the assessee objected by letter dated 12-9-1984 and the objection of the assessee was that there is no mistake apparent from record and the penalty cannot be enhanced in view of the judgment of the Allahabad High Court in the case of CWT v. Straw Board Mfg. Co. [1987] UPTC 1208. The judgment of the High Court in the case of Ramji Mal Govind Ram [1984] STI 220 (HC) was also pressed into service. In the latter judgment, the Hon'ble Court, it was projected, has pointed out that the assessing officer cannot be allowed to play two innings in penalty proceedings. The ITO, nonetheless, amended the original penalty order. In terms of Section 271(2) of the Act he worked out the minimum and maximum penalty imposable at Rs. 4,620 and Rs. 9,240. Since, in the original assessment order dated 30th January, 1984, the ITO had held that maximum penalty is imposable in the order made Under Section 154 on 8-10-1984, he enhanced the penalty to Rs. 9,240.
5. The assessee filed an appeal before the AAC against the order made Under Section 154 mentioned supra. But before the appeal against the order Under Section 154 could come up, the 1d. AAC by Ms order dated 12th June, 1985 held that penalty was imposable but in his opinion, "it would meet the ends of justice if the same is restricted to the amount of tax sought to be evaded". In other words, he justified the imposition of penalty up to the minimum extent of 100 per cent. In other words, the penalty of Rs. 1,460 levied by the ITO by his order dated 30th January, 1984, was reduced by this appellate order to Rs. 730. After this appeal was decided on the original order made by the ITO, the assessee's appeal against the order of the ITO made Under Section 154 on 8-10-1984 was taken up and decided by the 1d. AAC on 30th June, 1986. In this order, the 1d. AAC has noted the order of the AAC bearing appeal No. 360/83-84/B-SRE dated 12-6-1985 in which the 1d.
AAC confirmed the imposition of penalty but reduced the quantum to half. However, after noting that order of the AAC, the 1d. AAC has not issued any directions in the reduction of the penalty, which was taken at maximum rate in the order made Under Section 154. In other words, he confirmed the penalty at the maximum rate by his order dated 30th June, 1986. Hence, the assessee's present two appeals against the two appellate orders dated 12-6-1985 and 30th June, 1986.
6. We have heard the parties. The 1d. counsel for the assessee submitted that on the entirety of the facts and circumstances of the case no penalty is imposable upon the assessee. He submitted that the explanation on the basis of which, the ITO levied the penalty is no longer on statute book and the substituted explanation 1 required a finding from the ITO on different lines. It was contended by him that the ITO, in fact, never made out a case for imposition of penalty because he had himself rejected the books of account of the assessee and made an addition of Rs. 3,432 to the commercial result and trading results declared by the assessee. The addition of Rs. 10,800 could be justified on the ground that the assessee was not in a position to give full details of the party from whom, the purchases were made. However, it was contended that factually the cash had gone out of the cash book of the assessee and the paper purchased was utilized in manufacturing the books, which were sold. Even, the commercial results declared by the assessee, it was contended, were better than the last year and as such, there was no justification, whatsoever, for making any addition and the 1d. AAC took no time to delete the sum of Rs. 3,432. However, he confirmed Rs. 10,800. But that does not justify the imposition of penalty upon the assessee.
7. The 1d. counsel for the assessee further submitted that the ITO originally imposed the penalty of Rs. 1,460. Thereafter he amended this and enhanced the penalty to Rs. 9,240. He submitted that the ITO apparently made the original penalty order without fully applying his mind and in a casual manner. The subsequent amendment is not justified in view of the judgment cited before the lower authorities. It was further submitted that the authorities below were acting in a contradictory manner. The first order of the AAC had reduced the penalty to the minimum imposable. The second order of the AAC despite the fact that the first order was to his knowledge has confirmed the maximum penalty as imposed in the order Under Section 154. The 1d.
counsel for the assessee relying upon the judgment of the Delhi High Court in the case of CIT v. Mediratta Engg. Corporation [1981] 132 ITR 327 submitted that the case of the assessee is on a better footing and no penalty is imposable. The penalty imposed upon the assessee be cancelled. The assessee has, therefore, been very unfairly treated. The orders of the authorities below are without justification.
8. On the other hand, the revenue submitted that there is full justification for the imposition of penalty. The revenue also relied upon the ratio decidendi of the judgment of the Allahabad High Court in the case of CIT v. M. Habibullah [1982] 136 ITR 716.
9. We have given careful consideration to the rival submissions. We find that the ITO when he made the addition of Rs. 10,800 to the book results declared by the assessee held that the purchases of Rs. 10,800 were bogus. This conclusion was arrived at because the assessee was not able to give the particulars of the parties from whom the purchases had been made. Otherwise, there is no contravention of the fact that proper entries in the books of account for the purchases were made and the material purchased was shown as part of the manufacturing and trading activities for the year under appeal. It is also clear that the net profit shown by the assessee for the year under appeal was much better than the net profit for the immediately preceding asstt. year. The turnover declared by the assessee for the year under appeal showed a net profit rate of 16.3 per cent as against 12.9 per cent of the last year. The assessee, thus, showed increase of about 3.5 per cent in the rate of net profit over the last year. This was apparently a better result. According to the ITO, the tax sought to be evaded by the assessee-firm, if its status is taken as a registered firm, as it has been, come to only Rs. 730. Therefore, it is very incongruous that the assessee who has shown a better margin of profit should be penalised for something, the net result of which comes to the tax saving of Rs. 730. We have, therefore, viewed the entire facts and circumstances of the case whether the assessee could be penalised for not being able to give the particulars for the purchases made for its manufacturing activities worth Rs. 10,800. On the entirety of the facts of the case, which we have narrated in detail supra, we are not satisfied that its a case of concealment by the assessee nor it is a case of furnishing of inaccurate particulars, so as to defraud the revenue. Therefore, the penalty is not imposable on facts.
10. The Hon'ble Delhi High Court in the case of Mediratta Engg.
Corporation (supra) had a case before them in which a sum of Rs. 24,000 was debited in the books of the assessee towards the purchases of nickel but the assessee was not in a position to produce the Kawari from whom the purchase had been made and the amount had been surrendered by the assessee for taxation. Even, then the Hon'ble Court held that this was merely a case where an expense claimed by the assessee had been disallowed for want of complete proof. The penalty was, therefore, not imposable. The ratio of this case is applicable to the case before us. We are, therefore, satisfied that there is no case for imposition of penalty upon the assessee. The penalty levied by the ITO by his order dated 30th January, 1984 is and amended by his order dated 8-10-1984 is cancelled.