Sudhindra Mohan Guha, J. - (1.)In this reference tinder Section 256(2) of the I.T. Act, 1961, at the instance of the assessee, the question involved is as follows :
"Whether, in the facts and circumstances of the case, the Tribunal was justified in law in directing the imposition of any penalty under Section 271(1)(c) read with Section 274(2) of the Income-tax Act, 1961, on the assessee?"

(2.)The assessment year involved was 1964-65. The assessee was an individual. The business, according to the return filed, was in the name and style of D.N. Mitra & Co, In making the assessment, the ITO brought to tax an amount of Rs. 22,944 as representing the income of Hindusthan Trading Corporation, a concern which was said to belong to the assessee's wife, and in respect of which the income shown by the assessee's wife was Rs. 9,154. The assessee's wife had also shown in Sec. F of the return filed by her, hundi loans of Rs. 62,500. The ITO brought this amount, which appeared as credits in the books of Hindusthan Trading Corporation, to tax as undisclosed sources of income of the assessee. He also disallowed interest relating thereto of Rs. 13,661. In bringing the income shown by Hindusthan Trading Corporation of Rs. 9,154 to tax in the assessee's hands, the ITO observed that the facts and circumstances of the case had been detailed in the assessment orders for the earlier years, that is, the assessment years 1962-63 and 1963-64 and on the basis of the said facts the income had to be included in the present assessment of the assessee. So far as the hundi loans were concerned, he stated that summons were issued to all the creditors but they came back unserved and the assessee was given an opportunity to produce the parties, but they did not reply. He also stated that the identity of the creditors could not be established and, much less, their credit-worthiness. In these facts and circumstances, the ITO brought to tax the peak amount of Rs. 62,500 and also disallowed the interest amount of Rs. 13,790. The ITO also brought to tax another amount of Rs. 13,791 interest on all credits in the suspense account.
(3.)There was an appeal to the AAC against the addition which failed. In the penalty proceeding the IAC invoked the provision of the Explanation appended to Section 271(1)(c) as the difference between the returned income and the assessed income was more than 20 per cent. He held that the assessee failed to discharge the onus under the Explanation to Section 271(1). He, therefore, imposed the penalty of Rs. 14,903 under Section 271(1)(c) of the Act.