THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUTICE R.KANTHA RAO Referred Case No.212 OF 1991 Date:20.12.2011 Between: Commissioner of Income Tax, A.P.-III, Hyderabad .. Applicant And Sri C.V.Raghava Reddy (died) L/R Chjannareddy Kanthamma and Channareddy Sundara Ramireddy,Gudur ..Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUTICE R.KANTHA RAO Referred Case No.212 OF 1991 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao,) This referred case under Section 256(1) of the Income Tax Act, 1961 (the ‘Act’), is at the instance of the Revenue. The Income Tax Appellate Tribunal referred the following question for the opinion of this Court: Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in cancelling the penalty of Rs.37,410 levied on the assessee under Section 271(2) of the Income Tax Act for the assessment year 1968-69? This Court heard the Junior Standing Counsel for Income Tax Department, who has taken through the order of the Inspecting Assistant Commissioner, Nellore, the application under Section 256(1) and the order passed by the appellate Tribunal. After giving anxious consideration, we are convinced that the question referred to our opinion has to be answered in the affirmative against the Revenue and in favour of the assessee. The reasons are as follows. The respondent (hereinafter called, the ‘assessee’) was carrying on business in purchase and export of Mica scrap during the accounting year relevant to the assessment year 1968-1969. He filed his return of Income tax admitting an income of Rs.15,336/-. Therein, he claimed expenditure towards packing of mica purchase in Bhilwara and Kuwarla. The Assessing Officer added this expenditure on the ground that there was abnormal inflation of expenditure in respect of packing contract. The Assessing Officer also found that the packing charges were actually paid by the seller of mica at Bilwara and Kuwarla. The consequence of the assessment order adding the expenditure claimed is the penalty proceedings under Section 271(1)(c) of the Act. After issuing notice, the competent authority by order dated 03.05.1978 passed orders under Section 271(1)(c) levying penalty of Rs.37,410/- on the ground that the assessee concealed income by inflating expenditure towards packing material of mica. The assessee was unsuccessful before the Commissioner of Income Tax (Appeals). Being aggrieved, further appeal was filed before the Appellate Tribunal. By order dated 13.09.1979, the Appellate Tribunal allowed the appeal observing that when the assessment order, pursuant to which the penalty proceedings were initiated, itself was cancelled, the question of levying penalty under Section 271(1)(c) would not arise. Being aggrieved, the Revenue approached this Court under Section 256 (2) of the Act. This Court by order dated 25.09.1996 made in I.T.C.No.308 of 1985, directed the appellate Authority to refer the question noticed hereinabove. Section 271(1)(c) of the Act with its Explanation as it stood during the relevant time, reads as under. 271(1) - If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act is satisfied that any person- (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,….. Explanation: Where the total income returned by any person is less than eighty per cent, of the total income (hereinafter* in this Explanation referred to as the correct income) as assessed under Section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or willful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of clause (c) of this Sub-section. Firstly, there is no dispute that penalty under Section 271(1) (c) of the Act read with Explanation would be attracted only when the assessee has concealed the particulars of income or furnished inaccurate particulars of income. A perusal of the order passed by the Assistant Commissioner would reveal that there was no acceptable evidence which would probabilise the version of the Revenue that there was a concealment of income. The entire case of the Revenue rested on the statement of Mr. K.Prakash Rao. By reading the order dated 03.05.1978, wherein the penalty was levied, we are not able to discern any categorical statement having been made by the said K.Prakash Rao to the effect that the assessee inflated the expenditure towards packing material. Secondly, there is no dispute nor denial before us that the assessment order under Section 143(3) of the Act itself was cancelled. Therefore, the question of concealment and furnishing inaccurate particulars would not arise. The Junior counsel fairly admits that the additions made by the Assessing Officer were deleted and the assessment order was cancelled. This would conclusively lead to an inference that exercise of jurisdiction by the competent authority under Section 271(1)(c) of the Act was not warranted. The Tribunal was, therefore, right in coming to the conclusion as noticed above. In the result, the reference is answered in the affirmative against the Revenue and in favour of the assessee and the Referred Case shall stand disposed of accordingly without any order as to costs. ___________ V.V.S. RAO, J _______________ R. KANTHA RAO, J Date: 20-12-2011 kvrm/ccm THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUTICE R.KANTHA RAO Referred Case No. 212 OF 1991 DATE: 20.12.2011