SATISH CHANDRA J. - For the assessment year 1964-65, the assessee returned an income of Rs. 3,282. The Income-tax officer rejected the books of account and estimated the assessees income by applying a flat rate, at Rs. 39,344. He also disallowed certain expenses and took into account a cash credit which was surrendered by the assessee.
On appeal, the Appellate Assistant Commissioner reduced the assessable income to Rs. 35,917.
Subsequently, penalty proceedings were drawn up and ultimately the Inspecting Assistant Commissioner imposed a penalty of Rs. 6,700. On appeal, the Tribunal quashed the penalty order. It was found that on facts the Explanation to section 271(1) was not attracted.
At the instance of the Commissioner, the Tribunal has referred the following question of law of the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in canceling the order of penalty made by the Inspecting Assistant Commissioner against the assessee for the assessment year 1964-65 ?'
The Tribunal held that the disallowance of expenses was a matter of opinion and it cannot be said that there is any gross or willful negligence or fraud on the part of the assessee. The same view would apply to the extra profit added to the trading result. The department has not established that the addition made would be the real income. The mere fact that the estimate made by the Income-tax Officer has been revised downward by the Appellate Assistant Commissioner would show that the estimate is, after all, an estimate and by no means represents the real income of the assessee. The addition to the trading account is made with a view to bring the results to a reasonable level.
On this factual finding the Tribunal came to the conclusion that the assessee has committed no gross or willful neglect of fraud. In our opinion the finding reached is based on relevant material and it cannot be said that the finding was without any evidence. On his finding, the Tribunal was justified in canceling the imposition of penalty.
For the department reliance was placed upon Commissioner of Income-tax v. Kedar Nath Ram Nath : 106ITR172(All) and Addl. Commissioner of Income-tax v. Swatantra Confectionery Works : 104ITR291(All) . Both these cases are not applicable to this case. In both of them the Tribunal had, as a matter of law, held that in the case where income is estimated by application of a flat rate to the turnover no question of penalty under section 271(1) would arise. This court held that no such legal presumption could be raised. The question upon the facts and circumstances of each case. This court directed the tribunal to apply its mind to the facts of the case and find whether there was gross negligence of willful default or fraud on the part of the assessee. In the present case the Tribunal has gone on facts. It has not applied any presumption of law.
Our answer to the question referred is in the affirmative, in favour of the assessee and against the department. The assessee shall get its cost which are assessed at Rs. 200.