1980 (4) TMI 27 - HC - Income Tax

Tribunal & High Court cancel penalty for firm's Nickel purchase, citing lack of evidence

The Tribunal overturned the disallowance of Rs. 24,000 in assessment for a firm's purchase of Nickel due to lack of concrete evidence proving it ... Concealment, Penalty Issues:1. Disallowance of Rs. 24,000 in assessment.2. Imposition of penalty under section 271(1)(c).3. Tribunal's decision to vacate the penalty order.Disallowed Amount in Assessment:The case involved an assessee-firm manufacturing lathe chucks where a sum of Rs. 24,000 was debited towards the purchase of Nickel. The Income Tax Officer (ITO) disallowed this amount as the supplier could not be produced. The Tribunal noted that although the supplier was not produced, the trading account of the assessee was in order, and the nickel consumption ratio was consistent with previous years. The Tribunal concluded that while there might be suspicion of inflated purchase price, there was no concrete evidence to prove it fictitious, leading to the disallowance being unjustified.Imposition of Penalty:Following the disallowance, penalty proceedings under section 271(1)(c) were initiated, resulting in a penalty of Rs. 5,000 imposed by the Income Tax Appellate Tribunal. However, on appeal, the Tribunal vacated the penalty order considering various factors: consistent gross profit rates, similar nickel consumption ratios, and lack of concrete evidence to prove the purchase as fictitious. The Tribunal concluded that the penalty was not justified based on the facts and circumstances of the case.Tribunal's Decision to Vacate Penalty Order:The High Court upheld the Tribunal's decision to vacate the penalty order, stating that the conclusion was based on factual evidence and did not warrant interference. The Court emphasized that the failure to produce the supplier did not automatically render the purchase untrue, especially considering the overall consistency in the assessee's accounts. The Court distinguished this case from precedent where concealment was admitted, noting that in this instance, the assessee merely lacked complete proof for the expense claimed. Ultimately, the Court agreed with the Tribunal's decision to cancel the penalty, answering the referred questions in favor of the assessee.This detailed analysis highlights the disallowance in assessment, the imposition of penalty, and the subsequent decision by the Tribunal to vacate the penalty order based on the factual and circumstantial evidence presented in the case.