S.P. GOYAL J. - This is a petition under section 256(2) of the Income-tax Act for a mandamus requiring the Income-tax Appellate Tribunal to refer the following question :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in sustaining a penalty of 20 per cent. of the tax between the income assessed at Rs. 6,76,812 and the income returned according to the return of June 28, 1965, at Rs. 5,22,609 ?'
The assessee, a partnership firm of M.E.S. contractors, was granted a contract for constructing a runway at Sirsa Airfield. It filed a return on June 30, 1964, for the assessment year 1964-65 showing an income of Rs. 3,98,450 on estimate basis. The accounting year of the assessee was the calendar year ending on December 31, 1963. Thereafter, after completion of work on December 26, 1964, the assessee filed another return on June 28, 1965, on the basis of a consolidated profit and loss account showing an income of Rs. 5,22,609.
The construction work was spread over a period of two years beginning from December 28, 1962. The assessee had sold the assets of the partnership firm on the completion of the contract in December, 1964, and a loss of Rs. 2,22,958 shown on this account. After deducting this amount, a sum of Rs. 9,01,908 was shown as the net profit. The total income was thereafter Rs. 5,22,609 which was shown to be the net income for the accounting period.
The Income-tax Officer disallowed the deduction of Rs, 2,22,958 on account of the terminal loss as, according to him, this loss had occurred in December, 1964, and, therefore, no deduction could be allowed on this account in the assessment year. Consequently, on the basis of apportionment, he determined Rs. 7,02,534 to be the income for the assessment year. Deducting depreciation of Rs. 25,622, the net income for the purpose of this assessment was arrived at at Rs. 6,76,810. As there was a difference of Rs. 1,54,203 between the assessed income and the returned income, penalty proceedings were taken against the assessee and the Inspecting Assistant Commissioner levied a penalty of Rs. 2,23,958, vide order dated January 12, 1972. On appeal, the Tribunal reduced the penalty to Rs. 22,000 only with the following observation :
'What then is the correct position The assessed income was Rs. 6,76,812 and 80 per cent. thereof came to Rs. 5,41,448. With reference to the return of 28-6-1965, there was a difference of Rs. 18,839. Even if we assume that certain minor modifications which were made in submitting the return of 27-9-1968 (based on actual receipts received after 31-12-64) could not have been made in submitting the return on 28-6-1965, there is a difference of Rs. 9,511 between 80 per cent. of the income assessed and the income returned on 27-9-1968. The Explanation to section 271(1)(c) is prima facie applicable. The learned counsel for the assessee submitted that if adjustments for disallowance were made, there would virtually be no excess. The only adjustments possible would be for differences in depreciation of Rs. 7,393, salary of Rs. 710 and traveling allowance to partners of Rs. 1,000. This comes to Rs. 9,103 and does not cover the difference of Rs. 9,511. The balance may be small but it is there and we have to consider with reference to all the circumstances of the case, whether there has been any gross or wilful neglect or fraud on the part of the assessee. The assessee no doubt had filed a consolidated profit and loss account of Rs, 2,22,958 on sale of assets also stood depicted. However, such accounts did not mention that the sale of assets took place only in December, 1964, i.e., the close of the next accounting period. Since the sale of assets did not take place in this accounting period, the assessee certainly could not have apportioned any portion of the loss to this accounting period. The assessee was in error in making such apportionment and the assessee not having shown the date of sale in the consolidated accounts, we are of the view that the assessee has not discharged the onus to show that it was not a case of gross negligence. As a result of the assessee's action there was an under-statement of income to the extent of Rs. 1,19,170. We are, therefore, of the view that the provisions of section 271(1)(c) as they stood prior to the amendment on April 1, 1968, are applicable.'
The assessee then moved an application before the Tribunal for reference of the above-noted question of law claimed to be arising from this order which was declined by the Tribunal, vide order dated June 20, 1972. This led to the filing of the present petition.
A perusal of the said order shows that the Tribunal, after properly instructing itself respecting the presumption under section 271(1)(c) of the Act and taking into consideration all the materials available on the record, held that the assessee had failed to rebut the presumption and to show that the failure to return the correct income did not arise from any fraud or and gross or wilful neglect on his part. As held in Basant Lal Om Parkash v. Commissioner of Income-tax , a case for the imposition of penalty has to be decided on the material on record and it is essentially a question of the fact whether in a certain case a penalty is called for or not. We are, therefore, of the opinion that from the order of the Tribunal, no question of law arises. The petition is accordingly dismissed, but without any order as to costs.
SANDHAWALIA J. - I agree.