Commissioner of Income Tax vs Ganesh Rice Mills

The Income Tax Appellate Tribunal, Allahabad has referred the following questions of law Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act''), for opinion of this Court:

Whether on the facts and in the circumstances of the case had having confirmed the addition of Rs. 89,273 on account of bogus purchases, the Appellate Tribunal was legally justified in holding that the proviso below Explanation 1(B) of Section 271(1)(c) was applicable and thereby canceling the penalty of Rs. 22,000 imposed u/s 271(1)(c) of the Income Tax Act, 1961 ?

The reference relates to the assessment year 1984-85.

In the proceeding arising out of the penalty imposed u/s 271(1)(c) of the Act the Respondent-Assessee, which is a registered firm, is engaged in milling of grams, pulses and rice and also carried on business of purchase and sale of bhusi, chuni, etc. During the year under consideration, amongst others, the Assessee had shown purchases of chuni/bhusi of the value of Rs. 89,273 from five parties. On the enquiry, the purchases from three parties were found to be bogus. The purchases were added in the declared income, which have been confirmed up till the Tribunal.

Penalty proceedings u/s 271(1)(c) of the Act were also initiated and the Assessing Officer imposed a sum of Rs. 22,000 as penalty, which has been confirmed by the Commissioner of Income Tax (Appeals). However, the Tribunal had deleted the penalty on the ground that the explanation given by the Respondent-Assessee was bona fide and all material facts for computing the income were disclosed. The Tribunal has held that bona fides are further established by the purchase rates in the case of five parties in question and the sixth party, where the purchase was accepted as genuine. In the case of sixth party, the rate of purchase was Rs. 130 per quintal, whereas it varied from Rs. 87 per quintal to Rs. 101 per quintal in the case of five parties. It is the case of arriving at a different legal conclusion on the basis of available facts.

We have heard Sri A.N. Mahajan, learned standing counsel for the Revenue, and Sri R.R. Kapoor, learned Counsel appearing for the Respondent-Assessee.

We find that the Tribunal has held that the explanation given by the Respondent-Assessee was bona fide and had given reasons for deleting the penalty. We are of the considered opinion that the findings recorded by the Tribunal are based on the materials available on record.

We accordingly answer the questions referred to us in the affirmative, i.e., in favour of the Assessee and against the Revenue.

There shall be no order as to costs.