Decided on October 15,1979



DESAI, J. - (1.) THIS is an application under S. 256(2) of the IT Act, 1961, and the CIT, Gujarat Central, Ahmedabad prays that the Tribunal, Ahmedabad Bench, should be asked to raise and refer the following questions of law for the opinion of this Court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in setting aside the order of the IAC levying the penalty of Rs. 20,000 under S. 271(1)(c) of the IT Act, 1961 ? 2. Whether, the Tribunal was right in law in holding that the ITO had no jurisdiction to refer the case to the IAC and, therefore, the penalty cannot be sustained ? 3. Whether, the finding of the Tribunal that the income of Rs. 20,000 was only chargeable to tax as income from undisclosed source in the asst. yr. 1971 72, is correct in law and sustainable from the material on record ?"
(2.) IN our opinion, if no reference could be granted on questions Nos. 1 and 3, question No. 2 would be rendered academic and we would, therefore, consider first whether this is a fit and proper case, in which questions Nos. 1 and 3 of the Revenue's application under S. 256(2) can be entertained. The material facts as found by the taxing authorities are as follows: (1) The assessee filed the return of income for the asst. yr. 1971 72, declaring his total income at rupees nil. (2) In Part IV of the return, the assessee showed income of Rs. 59,856 as income from agriculture and claimed exemption. (3) In the course of investigation, the assessee was found to be the owner of a building valued at Rs. 3,25,000. (4) Addition in respect of unexplained investment was under contemplation under S. 69 when the assessee approached the Department for assessment on an agreed basis in that regard. (5) The assessee's contention that the building belonged to the HUF consisting of the assessee and his brother was accepted. (6) It was also accepted that the assessee's contribution towards the cost of construction of the building over a number of years was Rs. 1,75,000. (7) It was further accepted after discussion with the assessee that the said amount of Rs. 1,75,000 would be assessable in the assessee's hands over a number of years, of which a sum of Rs. 20,000 was assessable during the asst. yr. 1971 72. (8) Assessment for the asst. yr. 1971 72, was completed by adding the aforesaid amount of Rs. 20,000 on agreed basis as aforesaid.
(3.) THE ITO started penalty proceedings for a levy of penalty under S. 271(1)(c) in the course of assessment proceedings for the asst. yr. 1971 72. The proceedings came to be referred to the IAC as the ITO was of the view that the minimum penalty leviable exceeded Rs. 25,000. The IAC came to the conclusion that the investment in question was made out of some undisclosed income of the assessee and that, therefore, there was a concealment of particulars of income to the extent of Rs. 25,000 in the assessment year in question. In view of the said finding, the IAC levied a penalty of Rs. 20,000 under S. 271(1)(c) and directed the ITO to issue demand notice and challan accordingly. In appeal, the Tribunal held, on merits, that it was not clear that the investment of Rs. 20,000 in the construction of the property in question had been made out of the undisclosed income of the assessee assessable to tax for the asst. yr. 1971 72. The entire proceeding proceeded on the basis of the letter addressed by the assessee to the CIT, Gujarat II, wherein he admitted that the sum of Rs. 1,75,000 be treated as his non returnable contribution to the HUF towards the cost of construction of the property, and that the same be treated as his income from undisclosed source for the asst. yrs. 1968 69 to 1972 73. The assessee requested the CIT to tax the sum of Rs. 20,000 out of the aforesaid income from undisclosed source as income for the asst. yr. 1971 72.;

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