assessee has come up in appeal against order of CIT (A) wherein he has confirmed action of ITO imposing penalty of Rs. 21,084 under s. 271(1)(c) of Act. assessee is firm. assessment year is 1975-76 and relevant previous year ended on 30th June, 1974. During relevant previous year, assessee sold one of its ships Al- Aziz for sum of Rs. 70,000. This ship was acquired by assessee in previous year relevant to asst. yr. 1970-71 for sum of Rs. 70,280. Along with its return of income, assessee had sent statement of income wherein it had claimed loss of Rs. 280 under head "Capital gains" being difference between Rs. 70,280 and Rs. 70,000. Some time in March 1978, ITO prepared draft assessment order under s. 143(3) r/w s. 144B of Act wherein he had proposed to treat Rs. 21,084 as profit under s. 41(2) of Act, in following manner: "19. assessee had claimed loss of Rs. 280 on sale of vessel. It is seen that depreciation to tune of Rs. 21,084 was granted to assessee on vessel for and from asst. yr. 1970-71 to asst. yr. 1974-75. WDV of vessel as at time of alleged sale was Rs. 49,196. balancing profit under s. 41(2) to extent of depreciation granted amounted to Rs. 21,084. assessee was given opportunity to make his submissions in matter vide this office letter dt. 27th July, 1977. It was also proposed to deny depreciation on vessel, as according to assessee, vessel has been sold and was no longer in its ownership as on last day of accounting year. assessee vide his representative's letter dt. 30th July, 1977 has stated "under law, there is no balancing profit in view of provisions of law". assessee's explanation is not acceptable. In case of any asset used in business and on which depreciation has been allowed, and if sale price in respect of which is in excess of depreciated value, i.e. WDV, then balancing profit will be chargeable to tax. I, therefore, tax amount of Rs. 21,084 under s. 41(2). Also depreciation is not admissible on vessel as discussed above. Both these actions are taken as precautionary measure, in view of finding that no genuine sale has actually been made." Vide its letter dt. 19th March, 1978, assessee submitted its objections to proposed assessment order. As regards ITO's proposal to bring to tax Rs. 21, 084 assessee stated as under: "Regarding balancing profit under s. 41(2), you have not appreciated legal position of balancing profit because s. 41(2) is not applicable to my client. Written down value for purpose of ship remains same and therefore, there cannot be any balancing profit because balancing profit is difference between written down value and sale price. In para 19, you yourself was to consider sale as complete and was to t x balancing profit. So your observation in earlier paras and this is contradictory. I will further argue why this amount is not taxable at time of hearing." Thereafter, matter was referred to IAC for his directions as contemplated under s. 144B of Act. IAC's direction in respect of profit under s. 41(2) of Act read as under: "14. Profit under s. 41(2) "While selling vessel 'Al Aziz' assessee had claimed loss of Rs. 280. ITO noticed that WDV of vessel at time of sale was Rs. 49,196 and accordingly, worked out balancing profit under s. 41(2) at Rs. 21,084. According to assessee balancing profit could not be worked out with reference to ship. After due consideration, I am of opinion that ITO was correct in rejecting this argument." On 26th Sept. 1978, ITO framed assessment under s. 143(3) r/w s. 144B of Act. Wherein he had included Rs. 21,084 in total income of assessee treating same as balancing charge under 41(2) of Act. Simultaneously, he initiated proceedings under s. 274 r/w s. 271 of Act in respect of addition of said amount. In meanwhile, assessee preferred appeal before CIT (A) wherein, inter alia it contested applicability of provisions of s. 41(2) of Act and inclusion of Rs. 21,084 in its total income determined by ITO. assessee, however, remained unsuccessful. In order to complete narration, we reproduce below relevant portion of order of CIT (A) on this point: "8. As regards working of profit under s. 41(2), contention of appellant's representative that there is no written down value in case of ships is totally incorrect. Sec. 43(6) lays down that written down value in case of asset acquired before previous year is actual cost to assessee less all depreciation actually allowed to him. That depreciation is allowed to him on basis of written down value in each year or on actual cost is immaterial. All that has to be done is to deduct total depreciation allowed from actual cost to arrive at written down value. This written down value may not be relevant for purpose of depreciation to be allowed in case of ship. But is has certainly to be taken into account for determining profit or gain under 41(2). ITO was, therefore, justified in charging in profit under s. 41(2)." Having not satisfied with order of CIT (A), assessee preferred n appeal before Tribunal, wherein, inter alia, it once again contested applicability of provisions of s. 41(2) of Act and inclusion of Rs. 21,084 in its total income. Tribunal vide its order dt. 1st Feb., 1981 upheld action of IT authorities. Again, with view to complete narration, we reproduce below relevant portion of said order of Tribunal: "7. Taking up second point Shri Trivedi explained that unlike plant and machinery etc. where depreciation was allowed on basis of cost less depreciation allowed, in case of ships depreciation was allowed on actual cost; depreciation actually allowed was not adjusted for this purpose. He referred to s. 32 in this regard. He, therefore, urged that profits under s. 41(2) should be worked out on basis of sale price loss actual cost without adjusting depreciation. Shri Thakkar, learned Departmental Representative, however, pointed out that profits under s. 41(2) were charged on basis of difference between sea consideration and written down value. written down value was explained in s. 43(6)(b) to mean actual cost less depreciation actually allowed. Under s. 48(3)(3) ships were included in "plant". He, therefore, urged that for purpose of s. 41(2) we have to see sale consideration and written down value and not basis on which depreciation was to be allowed. We agree with Shri Thakkar, learned departmental representative on this aspect and hold that 41(2) profits have to be determined as difference between sale consideration and written down value; written down value would be arrived at by deducting depreciation actually allowed from original cost. fact that depreciation is allowed on actual cost and not written down value is irrelevant for purposes of s. 41(2)." It appears from order of ITO made under s. 271(1)(c) of Act that assessee had not complied with show cause notice issued by ITO. ITO, therefore, concluded that assessee had no explanation to offer. He, therefore, imposed penalty of Rs. 21,084 vide his order dt. 31st March, 1981. In appeal before CIT (A), assessee contended that on facts and circumstances available in its case, ITO was not justified in imposing penalty under s. 271(1)(c) of Act. It placed reliance on decision in cases of CIT vs. L.H. Vora (1965) 56 ITR 126 (Guj) and CIT vs. Anwar Ali (1970) 76 ITR 696 (SC). CIT (A), however, came to conclusion that assessee had concealed income and therefore, ITO was fully justified in imposing penalty under s. 271(1)(c) of Act. Being aggrieved by order of CIT (A), assessee has come up in appeal before Tribunal. ld. counsel for assessee kly argued that on facts and circumstances obtaining in instant case, IT authorities were not justified in imposing penalty under s. 271(1)(c) of Act. In this connection he highlighted fact that all necessary facts and particulars were furnished in return of income and since assessee was under honest belief that provisions of s. 41(2) of Act would not be applicable in case of ship as compared to building, plant and machinery, no profit under that section would arise when its ship was sold for Rs. 70,000. He also highlighted fact that since ship in question was purchased for Rs. 70,280, assessee had itself shown loss of Rs. 280 under head "capital gains". It is from this information that ITO worked out balancing charge of Rs. 21,084. In other words, he wanted to impress upon us that all necessary material was not only disclosed by assessee but was also available with ITO. ld. Counsel for assessee went on to say that if assessee was under bona fide belief that certain income was not chargeable to tax, no action under s. 271(1)(c) of Act could be taken against him merely because he had not shown such income in appropriate part of return captioned "Particulars of income claimed to be exempt from tax and not included in total income". At this stage, he contended that assessee had agitated issue regarding applicability of provisions of s. 41(2) of Act and inclusion of Rs. 21,084 in its total income both before CIT(A) as well as Tribunal. According to him, provisions of s. 41(2) of Act of Act could not be attracted in case of ship sold by it. He, therefore, urged that on proper appreciation of facts and circumstances obtaining in instant case, CIT (A) ought to have cancelled penalty imposed by ITO under s. 271(1)(c) of Act. Reliance was placed by him on decision of Hon'ble Orissa High Court in case of CWT vs. Ramniklal D. Mehta (1982) 28 CTR (Ori) 69: (1982) 136 ITR 729 (Ori). ld. representative for department, on order hand, kly relied on orders of IT authorities and justified their action. He also made out point that assessee had filed its return of income on 12th Jan., 1976 disclosing total income of Rs. 49,000. assessee's income stood at Rs. 73,590 after giving effect to appellate order in quantum matter. In this view of matter, ld. representative for department submitted that assessee's case is fully covered by s. 271(1)(c) r/w Expln. 1 thereto as to stood during relevant time. According to ld. representative for department, present case clearly indicates gross negligence on part of assessee in not showing balancing charge under s. 41(2) of Act in its return of income. At this stage, he placed before us return of income filed by assessee and highlighted fact that against column, wherein s. 41(2) profit is required to be shown, assessee had simply mentioned "as per statement of income attached". Regarding aforesaid decision of Hon'ble Orissa High Court, ld. representative for department submitted that since applicability of provisions of Expln. 1 to s. 271(1)(c) of Act did not come for consideration before said High Court, assessee cannot get any help therefrom. He, therefore urged that we should uphold order of CIT (A). ld. counsel for assessee in his reply submitted that since ITO himself has not invoked provisions of Expln. 1 to s. 271(1)(c) of Act, Revenue should not be allowed to support action of ITO at this stage on altogether different ground. In this connection, he submitted that even when difference between income returned and that assessed was more than Rs. 21,084, ITO had imposed penalty in respect of addition of Rs. 21,084 only. If provisions of Explanation were to be applicable, as urged by ld. Departmental Representative, then penalty of Rs. 24,590 should have been imposed by ITO which is not done in instant case. Thereafter, he invited out attention to order of CIT (A) and pointed out that his line of approach was only on basis that assessee had concealed income. We have carefully considered rival submissions of parties as well as material placed before us and we are of view that this is not fit case for imposing penalty under s. 271(1)(c) of Act. It cannot be denied that assessee had in fact furnished information to ITO that it had purchased ship in question for Rs. 70,280 and had sold same in relevant previous year for sum of Rs. 70,000. only fault which could be found with assessee is that it had not worked out balancing charge as contemplated under s. 41(2) of Act. However, as could be seen from above that right from assessment till Tribunal stage, assessee had kly contested that provisions of s. 41(2) of Act were not applicable to it. Since balancing charge is worked out on basis of "the difference between actual cost and written down value", assessee might have taken this approach in view of fact that in case of ship owned by it, depreciation was allowed at fixed percentage viz., 5 per cent on actual cost from year to year unlike depreciation as allowed on other assets on stipulated percentage on written down value. Since assessee was under bona fide belief that on sale of ship in question balancing charge could not arise, no adverse sale of ship in question balancing charge could not arise, no adverse inference could be drawn against it merely because it had made remarks "as per statement of income attached" against column where it was required to show profit under s. 41(2) of Act. Similarly, fact that assessee had not mentioned anything about it in relevant part of return viz. "particulars of income claimed to be exempt from tax and not includible in total income" would not in our view justify IT authorities to impose penalty under s. 271(1)(c) of Act. On proper appreciation of facts and circumstances obtaining in instant case, we are of view that assessee had neither concealed particulars of its income not had it furnished inaccurate particulars thereof so as to bring its case within mischief of s. 271(1)(c) of Act and Expln. 1 to said section as is stood at relevant time. We have, therefore, no hesitation in cancelling penalty imposed under s. 271(1)(c) of Act. In result, appeal is allowed. *** BHAYA MARINE TRANSPORT CO. v. INCOME TAX OFFICER