Per Shri V. P. Elhence, Judicial Member - The assessee is aggrieved of the order dated 9-2-1983 of the learned Commissioner (Appeals), Allahabad.
2. The assessee is a registered firm which deals in the purchase and sale of pumping set machinery parts, etc. For the assessment year 1977-78 on a turnover of Rs. 17,64,994, the assessee declared a gross profit of Rs. 1,28,433 at the rate of 7 per cent. An addition of Rs. 35,000 was made by ITO to the trading results, to cover possible leakages. Since the addition was made on agreed basis, no appeal was filed by the assessee. However, the ITO initiated penalty proceedings against the assessee under section 271(1)(c) of the Income-tax Act, 1961 (the Act). In reply dated 25-2-1982 in response to the ITOs letter dated 16-2-1982, the assessee stated that the proceedings initiated may be dropped. However, the ITO relied upon the following entry dated 22-11-1979 in the order sheet :
'An addition of Rs. 35,000 made on agreed basis. Assessed 271(1)(c) :
The ITO took the view that the assessee had not only agreed to an addition of Rs. 35,000 to the trading results but it also accepted that it was the concealed income as the order for issue of notice under section 271(1)(c) of the Act was also made in the same entry. According to the ITO, this was the reason why the assessee had not given any explanation for concealment of income. He, therefore, held that the addition of Rs. 35,000 represented the income of the assessee in respect of which the particulars had been concealed or were inaccurate. Accordingly, he levied a penalty a Rs. 21,000 with the prior approval of the IAC.
3. In appeal, the learned Commissioner (Appeals) held that on account of the words 271(1)(c) in the order sheet, the assessee was aware that penalty proceedings would be initiated and that the assessee was concerned by the facts and figures of this year and earlier years and since it did not put any condition that no penalty should be levied. The ratio of the decision of the Honble Allahabad High Court in the case of Banaras Chemical Factory v. CIT : 108ITR96(All) was applicable and that the levy of penalty was justified.
4. The assessee being aggrieved, has come up in appeal before us. Shri M. B. M. Gabhawala, the learned counsel for the assessee, firstly, submitted that the assessee had only agreed to the addition and not either to the initiation of the penalty proceedings or to the levy of the penalty under section 271(1)(c). He drew a distinction between agreement to have the addition made in order to buy peace and surrender of concealed income. He pointed out that there were no defects in the accounts of the assessee nor any disclosure had been made by it and that the addition was made for possible leakages only because the gross profit declared was considered to be low. In this connection, he also pointed out that neither any queries were made nor any explanation was asked for from the assessee had that from the mere fact that no specific explanation was given by the assessee also placed by him on these decision - D. Halappa Sons v. CIT : 95ITR542(KAR) CIT v. Bombay Automobiles : 123ITR582(AP) , Addl. CIT v. Aggarwal Misthan Bhandar , CIT v. Devandas Perumal & Co.  28 CTR (Bom.) 211 and Addl. CIT v. Jeewandas Gyanchand  28 CTR (MP) 285.
On the other hand, Shri K. K. Roy, the learned departmental representative, placed strong reliance on the orders of the income-tax authorities. He argued that there being no reply of the assessee in response to the show-cause notice, Explanation 1 to section 271(1)(c) as applicable for the assessment year 1977-78 in question was applicable and, therefore, the penalty was justified. He also relied upon the order sheet entry referred to above and submitted that on account of the assessees agreement, the ITO was shut out from making enquiries. Reliance was also placed by him on these decisions - CIT v. Anwar Ali : 76ITR696(SC) CIT v. Sir Shadilal Sugar & General Mills Ltd. : 86ITR776(All) , Banaras Chemical Factorys case (supra) and A. K. Bashu Sahib v. CIT : 108ITR736(Mad)
In reply Shri Gabhawala submitted that Explanation 1 to section 271(1)(c) as relied upon on behalf of the revenue, was not attracted in the present case.
5. We have considered the rival submissions as also the decisions referred to above. Each case has to be decided on the basis of its own facts. A perusal of the order sheet entry dated 22-11-1979 quoted above, as also the order sheet entries preceding the same clearly show that the return was filed under section 139(1) of the Act and that only a notice was issued under section 143(2) of the Act and that no enquiries on any specified pointed were made by the ITO. Secondly, the addition of Rs. 35,000 was made on agreed basis because for the assessment year 1975-76, on a turnover of Rs. 14,28,035 a gross profit of Rs. 1,36,870 at the rate of 9 per cent and for the assessment year 1976-77 on a turnover of Rs. 13,83,850 a gross profit of Rs. 1,58,601 at the rate 11 1/2 per cent had been shown. The assessee is not required to be heard before the initiation of penalty proceedings under section 271(1)(c) nor does it appear that the assessee was, in fact, heard in this case before such initiation. The assessee, on the facts of the present case cannot be said to have agreed either to the initiation of the penalty proceedings under section 271(1)(c) or to the imposition of any penalty therein. The stage of the assessees agreement for the imposition of the penalty could have come only in the course of the penalty proceedings and not in the course of the assessment proceedings. Therefore, the observations of the ITO in the penalty order to the contrary are neither correct nor justified. The learned Commissioner (Appeals) was also not justified in observing that the assessee was cornered all the same by the facts and figures of this year and earlier years. A perusal of the comparative gross profit chart from the assessment year 1969-70 onwards shows that a gross profit rate of 5.2 per cent had been accepted by the ITO. Again for the assessment year 1971-72, a gross profit rate of 7.1 per cent was declared by the assessee and after the addition of Rs. 2,500 retained by the Tribunal, the gross profit rate came to 7.3 per cent which is the gross profit rate shown by the assessee for the assessment year in question. For other years, the gross profit rates varied. We have referred to these figures only to highlight the fact that in the absence of detection of any defects in the assessees books of account and in the absence of any queries or notices whatsoever to the assessee, the addition had been and agreed to buy the peace merely on account of the low gross profit rate. Since on facts, it could not be said that the assessee felt cornered raised on its behalf before the Commissioner (Appeals) that the addition had been agreed to only buy peace and not by way of admission of concealment was quite reasonable. In the assessment order, the ITO himself mentioned that the addition was made to cover possible leakages. No specific leakages or defects had been detected by him. Explanation 1(A) to section 271(1)(c) refers to the failure on the part of the assessee to offer an explanation in respect of any fact material to the computation of his total income. No stage for offering such an explanation ever arose in the assessment proceedings before the ITO because the facts material to the computation of total income had been given by the assessee and no queries or notices were addressed to the assessee in regard thereto. The learned departmental representative is, therefore, not right in inferring that the concealment was established on the part of the assessee under the aforesaid provision. In the case of Anwar Ali (supra) it was clearly held that the finding given in the assessment proceedings for determining or computing the tax, though good evidence, is not conclusive. In the case of Sir Shadilal Sugar & General Mills Ltd. (supra) the Honble Allahabad High Court held that mere fact that the assessee had agreed that particular sums were its income, did not indicate any criminality in its action to conceal the income and that no penalty could be imposed in respect thereof. In the case of D. Halappa Sons. (supra) wherein the assessee had concerned to the minimum penalty under section 271(1)(c), the Honble Mysore High Court held that no penalty could be imposed merely on the concession of the assessee when none of the authorities had stated that the assessee had consciously concealed the particular of its income. The case of Banaras Chemical Factory (supra) decided by the Honble Allahabad High Court pertained to a case where the assessee had made voluntary disclosure of income. There is no such disclosure in the present case. In the case of A. K. Bashu Sahib (supra), the Honble Madras High Court was only considering the case of estimate of income and it is only in that context that it had observed that it could not be said that in all cases where the taxing authorities estimated the income at a figure higher than that estimated by the assessee, no penalty was leviable. The present case is not that of an estimate. In the case of Bombay Automobiles (supra) the Honble Andhra Pradesh High Court was only considering the case of imposition of penalty where there was inability to explain satisfactorily. Even in that case it was recognised that the question whether consent given by the assessee for the imposition of penalty was a valid one, was a question of fact. In the case of Aggarwal Misthan Bhandar (supra), the Honble Rajasthan High Court was again considering the case about an estimated higher assessment which was accepted by the assessee to avoid disputes. It is in that context that it was held that the levy of penalty was not valid. In the case of Devandas Perumal & Co. (supra) and the case of Jeewandas Gyanchand (supra) the proposition was recognised by the Honble Bombay High Court and the Madhya Pradesh High Court that he mere factum of the ITO, having estimated the net profit at a figure higher than what was is disclosed, was not conclusive for establishing that the failure to return the correct income arose out of fraud or gross or willful neglect of the assessee. Viewed in this context and looking to the entire facts and circumstances, therefore, we are clearly of the view that the fact that the assessee had agreed to the addition of Rs. 35,000 to the trading results did not amount to any concealment of income or of any particulars thereof and that no penalty was imposable under section 271(1)(c) with reference thereto. Accordingly, the penalty deserves to be deleted. We hold accordingly.
6. In the result, the appeal is allowed.