COMMISSIONER OF INCOME TAX Vs. STAR OIL MILLS

JUDGEMENT

(1.) THIS reference arises out of the order dt. 27th Nov., 1980 passed by the Tribunal, Madras Bench, in ITA 602/Mad/78 -79 relating to asst. year 1973 -74.

(2.) THE question referred to us for decision is as follows :

(3.) IN this case, we are only concerned with the order of the Tribunal setting aside the penalty. The assessment has become final. The necessary facts of the case are as follows : The assessee is a firm consisting of two partners dealing in groundnut kernels as also manufacturer of groundnut oil. On 20th Aug., 1973, it filed a return admitting an income of Rs. 58,032. During the course of the examination of accounts of the assessee firm, it was noticed that the assessee firm had sold kernels to another firm by name Star Oil Seeds Traders. This firm was claimed to be a partnership firm consisting of the wives of the two partners of the assessee firm. This firm was said to have come into existence by a deed drawn up on 1st April, 1972. That firm was also carrying on the same business as that of the assessee and the goods sold by that firm were to the same company, namely M/s Hindustan Lever Ltd. The ITO, therefore, concluded that the firm, Star Oil Seeds Traders was not a genuine firm, but, was only a business of the assessee firm carried on in the name of another firm. He refused registration to the other firm and included the income in the assessment of the assessee firm. As a result of this, the total income of the assessee firm was assessed at Rs. 1,41,927 as against Rs. 58,032 returned. Since the income of the other firm was not included in the return filed by the assessee firm, the ITO initiated penalty action under S. 271 (1)(c) and referred the matter to the IAC as at the relevant time the penalty was to be imposed by the IAC as the amount of penalty exceeded Rs. 25,000. The IAC by his order dt. 1st March, 1978 imposed a penalty of Rs. 70,600 under S. 271(1)(c) as the additional has been confirmed by the Tribunal also on appeal. The assessee filed an appeal before the Tribunal against the penalty imposed by the IAC.