1976 (2) TMI 64 - AT - Income Tax

Summary

Issues:
1. Assessment of total income for the assessment year 1968-69.
2. Imposition of penalty under section 271(1)(c) of the IT Act for concealment of income.
3. Interpretation and application of Circular of the CBDT regarding penalty imposition.

Analysis:

1. The assessment for the assessment year 1968-69 was completed by the Income Tax Officer (ITO) on a total income of Rs. 1,002, despite the assessee disclosing a net loss of Rs. 17,665 in its Profit & Loss account. The additions made by the ITO to convert the loss into a profit included estimated addition to gross profit, interest on credits surrendered in the earlier assessment year, hundi credits not satisfactorily explained, and disallowed expenses. The ITO initiated action under section 271(1)(c) of the IT Act for concealment of income.

2. The assessee contended that the additions made were not covered by a Circular of the CBDT, which stated that no penalty was exigible if the total income assessed was less than Rs. 10,000. The ITO imposed a penalty of Rs. 22,500 on the assessee, arguing that there was definite concealment of income regarding hundi loans and interest on surrendered credits.

3. The Appellate Assistant Commissioner (AAC) found that the addition of Rs. 12,000 was not conclusively proved to be income of the assessee, granting relief in that regard. However, he sustained a penalty of Rs. 3,000 for interest on surrendered credits. The assessee and the ITO both appealed to the Tribunal.

4. The Tribunal considered the applicability of the Circular of the CBDT, which excluded the application of the Explanation to section 271(1)(c) in cases where the assessed income did not exceed Rs. 10,000 due to additions like cash credits. The Tribunal held that the Circular was binding on all departmental authorities, and the penalty imposed by the AAC was canceled, allowing the assessee's appeal. The ITO's appeal was dismissed for the same reason.

In conclusion, the Tribunal ruled in favor of the assessee, canceling the penalty imposed by the AAC based on the Circular of the CBDT, which prevented the application of the Explanation to section 271(1)(c) in cases where the assessed income did not exceed Rs. 10,000 due to specific additions.