1. The short question that requires determination in this reference under Section 256(1)of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') is whether the Tribunal was justified in law in holding that the assessee was not liable to penalty under Section 271(1)(c) of the Act.
2. The assessee carried on business as a commission agent and of dealings in foodgrains. For the assessment year 1968-69, the assessee returned an income of Rs. 15,883 as per profit and loss account. However, the Income-tax Officer assessed him on an income of Rs. 71,217, rounded off to Rs. 71,220. The difference between the returned and the assessed income arose because of the addition of the following items to the returned income :
Gaushala account, and
Wrong claim of bad debt
3. The Income-tax Officer initiated penalty proceedings under Section 271(1)(c) of the Act at the time when he completed the assessment. As theminimum penalty leviable was more than Rs. 1,000, the case was referred to the Inspecting Assistant Commissioner, under Section 274(2) of theAct. The Inspecting Assistant Commissioner levied a penalty of Rs. 55,337,under the Explanation to Section 271(1)(c) of the Act as the income returned was less than 80 per cent, of the income assessed under Section 143of the Act. The Inspecting Assistant Commissioner was of the view thatthe assessee was guilty of gross negligence in not making additions to hisincome of the items mentioned above. The assessee then filed an appealto the Appellate Tribunal. The Appellate Tribunal, however, took intoconsideration the fact that the items, referred to above, were exhibited inthe profit and loss account, a copy of which was submitted along with thereturn. As all these items were mentioned in the profit and loss account,it took the view that the assessee had no intention to hoodwink therevenue and that it was a pure case of inadvertent omission. According tothe Tribunal, 'inadvertent mistake' was not equivalent to 'grossnegligence' or 'wilful neglect'. The Tribunal, accordingly, deleted thepenalty. The department being dissatisfied moved an application under Section 256(1) of the Act and the following question of law has beenreferred for opinion to this court:
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the assessee was not liable to penalty under Section 271(1)(c) of the Act?'
4. We have stated the facts. It may be mentioned at the outset that, on these facts, the Tribunal could take either of the views, namely, that the omission was deliberate and also that it was not, because no explanation of the assessee was called for as to in what circumstances he omitted to add back the amounts which were mentioned in the profit and loss account and were, in fact, added back by the Income-tax Officer. The Inspecting Assistant Commissioner took the view that there was gross negligence and wilful default whereas the Tribunal has taken quite a contrary view. As a matter of fact, about the two additions, namely, wealth-tax and income-tax, even the counsel present in court were ignorant that they are not permissible deductions. If this is the case with the legal profession, how can one expect a different standard from a layman; more particularly,when the assessee can only read and write Urdu. In this view of the matter, no fault can be found with the decision of the Tribunal.
5. For the reasons recorded above, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the department. There will be no order as to costs.