S.K. Das, J. - (1.) This is an appeal by special leave from the judgment and order of the High Court of Allahabad dated July 16, 1956, by which the said High Court decided a question referred to it under section 66(1) of the Income Tax Act, 1922, against the assessee. The question was in these terms :"Whether the Appellate Assistant Commissioner was legally justified in issuing a notice under section 28 of the Income Tax Act in circumstances of the case of the applicant in respect of the item of Rs. 76,836 -
(2.) We may first state the relevant facts. The assessee, appellant before us, is a partnership firm which ran a sugar mill at Cawnpore and assessee for the manufacture of sugar involved the conversion of gur into sugar. In the relevant assessment year 1942-43, the account year being October 1, 1940, to September 30, 1941, the assessee submitted a return of income and on the basis of that return the Income-tax Officer concerned made an assessment on November 30, 1944. When making the assessee two sums of Rs. 63,954 and Rs. 76,836. The sum of Rs. 63,954 was added in respect of the market value, as calculated by the Income-tax Officer, of the goods which were in the factory in the process of conversion from gur into sugar. In the return filed by the assessee this stock of "goods in process" was not included at all. The Income-tax Officer found that at the close of the relevant account year the stock of "goods in process" which had not been shown in the return consisted of 7,956 maunds and the corresponding stock of "goods in process" at the beginning of the account year was 850 maunds. The Income-tax Officer added a sum of Rs. 63,954 being the price of 7,106 maunds, the difference between the opening and the closing stock. The price was fixed at the rate of Rs. 9 per maund. The second sum of Rs. 76,836 was added back on the ground that it had been wrongly shown as expenditure in respect of excise duty in the account year, when the sales in respect of which this duty was paid had been made in the preceding year. It was held that as the assessee maintained accounts on the mercantile system of accounting, this excise duty should have been debited as expenditure not in the account year but in the preceding year. The assessee appealed to the Appellate Assistant Commissioner in respect of both these items and urged certain points in support of its appeal which need not be stated here. The Appellate Assistant Commissioner did not accept the contentions urged on behalf of the assessee and rejected the appeal by his order dated July 8, 1946. On July 5, 1946, however, he issued a notice to the assessee under section 28(3) of the Income Tax Act asking it to show cause why a penalty under section 28(1) (c) should not be imposed on it on the ground that it had concealed the particulars of its income or deliberately furnished inaccurate particulars of its income, inasmuch as the stock of "good in process" amounting to 7,106 maunds was not accounted for and a sum of Rs. 76,836 on account of excise duty relating to another year was debited against the profits of the year of account. On July 22, 1946, the assessee furnished an explanation in answer to the notice. This was considered by the Appellate Assistant Commissioner who, by his order dated January 21, 1947, rejected the explanation furnished by the assessee and imposed a penalty of Rs. 50,000 on it. The assessee went up in appeal to the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal) both against the order of assessment confirmed by the Appellate Assistant Commissioner and the order imposing a penalty under section 28(1) (c) of the Income Tax Act. In the appeal from the assessment order, the Tribunal came to the conclusion that the valuation of 7,106 maunds of "goods in process" should be made at Rs. 6 per maund instead of Rs. 9 as fixed by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner. The amount of Rs. 63,954 was accordingly reduced to Rs. 42,636. As to the second sum of Rs. 76,836 the Tribunal held that the Income-tax Officer correctly found that that sum was not an expenditure in the relevant year of account, but none the less it was an expenditure incurred in the business and should have been allowed for the year to which it appertained. The Tribunal expressed the view that there should be no difficulty in correcting the assessment of that particular year in which the expenditure was incurred, under section 35 of the Income Tax Act. The Tribunal said : "Lest there be a doubt on the point, we direct that the excise duty of Rs. 76,836 should be adjusted as an expenditure due and allowable for the earlier year of assessment, i.e., 1941-42."
(3.) This order was passed by the Tribunal on August 7, 1947. As to the penalty imposed under section 28(1) (c) of the Income Tax Act, the Tribunal held that the penalty was rightly imposed but reduced the quantum of penalty to Rs. 43,000.;