Penalty under section 271(1)(c): credible stock-write-off explanation and commercial evidence justified deletion of penalty.

Penalty under section 271(1)(c) was examined in the context of a write-off of non-saleable and damaged stock. The Tribunal accepted the assessee's explanation that, as a food-processing and export business, it dealt with perishable goods subject to expiry, along with unusable packing material and items rendered unsaleable by changed specifications or brand requirements. It also relied on stock details and surrounding commercial circumstances to hold that the explanation was credible and that the burden under Explanation 1 had been discharged. On those factual findings, the deletion of penalty was upheld and no substantial question of law arose.

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Issues: Whether the Tribunal was justified in deleting penalty under section 271(1)(c) of the Income-tax Act, 1961, on the footing that the assessee had discharged the onus under Explanation 1.

Analysis: The penalty issue turned on the explanation offered by the assessee for writing off non-saleable and damaged stock. The Tribunal accepted that the assessee was engaged in food processing and export, that the goods were perishable and subject to expiry, and that the write-off also covered unusable packing material and items rendered unsaleable by changed specifications or brand requirements. It further found that the explanation was supported by stock details and surrounding commercial circumstances. Those factual findings were considered sufficient to show that the deletion of penalty could not be based only on the quantum additions, because penalty under Explanation 1 depends on the assessee's ability to explain the relevant entry and discharge the burden cast upon it.

Conclusion: The deletion of penalty was upheld and no substantial question of law arose.

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