1. This is a reference under s. 256(2) of the I.T. Act, 1961. The assessed-firm manufactured lathe chucks at Bahadurgarh. In the course of the examination of accounts for the year 1964-65, the ITO found that a sum of Rs. 24,000 had been debited in the books of the assessed on November 4, 1963, towards the purchase of Nickel. In support of this entry a kuccha chit alleged to have been singed by a kabari was produced before the ITO. The ITO could not believe, that an ordinary kabari could have Nickel worth Rs. 24,000 for sale in lot. So, he called upon the assessed to produce the supplier. The assessed, however, wrote back to the ITO on March 12, 1965, stating :
'The purchase bill as well as the stamped receipt voucher in respect of 2,400 kgs. nickel purchase from Shri Chetan Kabaria has already been submitted to you in original. We can produce the consumption record of the factory in support of the purchase. Unfortunately since we do not have complete address of the person, we are unable to produce him before you. The purchase was made from kabari by chance and were tempted to purchase the same as the item was in short supply and was not available from the normal trade channels and also because our production was suffering for want of this item.
Since we cannot prove the purchase conclusively by producing the supplier, we are prepared to submit to you and offer to be assessed to best of your judgment, keeping in view the fact that no sane businessman will like to turn white money into black money especially when he is in short of funds.'
2. The latter added that the sum of Rs. 24,000 could be added to the income but it was requested that a lenient view may be taken in the imposition of penalty. On August 7, 1965, the partner of the assessed-firm also gave a statement expressing the inability of the assessed to produce the supplier for want to his complete address. In the above circumstance the sum of Rs. 24,000 was disallowed and added back in the assessment and this was also confirmed up to the stage of the Tribunal.
3. Consequent upon the above assessment penalty proceedings under s. 27(1)(c) were initiated. The IAC, by an order dated November 13, 1967, imposed a penalty of Rs. 5,000 observing that the assessed's surrender of the amount for addition was not voluntary and that this was a case for the levy of penalty. However, on an appeal by the assessed, the Tribunal after referring to the decision of this court in CIT v. Azad Bharat Finance Co. : 75ITR40(Delhi) held that a penalty was not livable in view of the following circumstances :
'The G.P. rates shown and accepted in the past ranged between 24% and 25% whereas in the year under consideration it came to about 26%. The addition of Rs. 24,000 raised the G.P. rate to 32.5% (wrongly mentioned as 25.5% in the order);
(ii) The ratio of nickel consumption to casting done was broadly the same in comparison with that of earlier years;
(iii) The alloy of which chucks are made, m necessarily entails addition of a minimum quantity of nickel for imparting to the alloy the minimum toughness expected.
(iv) Though the kabari was not produced, some kuccha vouchers were available. At best the purchase is not proved; it cannot be said that the purchase has been disproved by the department;
(v) There is a withdrawal of Rs. 24,000 on the same day for payment against purchase. We are hesitant to say that the amount has been with drawn and kept at home.'
4. The questions of law which have been referred for the opinion of this court are :
'1. Whether, on the facts and in the circumstances of the case, the decision of the Tribunal is based on evidence, is reasonable and correct in law
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in vacating the penalty order ?'
5. We are of opinion that the conclusion arrived at by the Tribunal that the penalty was not livable on the facts and circumstances of the present case was conclusion of fact based on the material on record pH and that it does not call for any interference in a reference. It is no doubt true that the assessed was not able to produce the person who was alleged top have supplicated the huge quantity of nickel required by the assessed for it business purposes. But at the same time, as pointed out by the Tribunal the entire purchase could not be disbelieve, for the reason that there was nothing wrong with the trading account of the assessed. The ratio of nickel consumption compared favorably with those in earlier years. The alloy position was satisfactory and the gross profits rated shown by the assessed also compared favorable with those in earlier years. In these circumstances, the purchase by itself could not be doubted. If at all, there could be some sort of supposition that the purchase price has been inflated, but even in regard to that there was no material available on record to show that the purchase price has either been fictitiously debited in the books or has been inflated. The failure of the assessed to produce the kabari only amounts to its failure to strictly prove the purchase. But from this circumstance alone it cannot be inferred that the entire claim or a part of it was entree or fictitious.
6. Mr. Verma, learned counsel for the Commissioner, invited our attention to the decision of this court in Durga Timber Works v. CIT : 79ITR63(Delhi) . But a perusal of the above shows that the facts on which that case was decided were totally different. In that case, the assessed has not only surrendered an amount in respect of which enquiries were initiated but he also admitted that they represented the concealed income of the firm. In the present case all that the assessed stated in his letter dated March 12, 1965, was that he was not in a position to prove the purchase and that, thereforee, he would submit to the assessment to the best of the judgment of the ITO. The letter, however, emphasised the improbability of an assessed trying to turn white money into black money especially when he is short of funds. In the latter dated March 12, 1965 itself the assessed has stated that a lenient view may be taken in the imposition of the penalty which the Tribunal pointed out is also wide enough to mean that the assessed requested that, while it was agreeing to the addition penalty should not be levied.
7. In short, this is merely a case where an expense claimed by the assessed has been disallowed for want of complete proof. There is no other circumstance from which either negligence of default or concealment on the part of the assessed could be inferred. We are, thereforee, of opinion that the Tribunal was justified in cancelling the penalty.
8. The questions referred to us are, thereforee, answered in the affirmative and in favor of the assessed. We, however, make to order as to costs.