R.N. Misra, J. - (1.)THIS is an application at the instance of the revenue under Section 256(2) of the Income-tax Act of 1961 (hereinafter referred to as "the Act") for a direction to the Income-tax Appellate Tribunal, Cuttack Bench, to state a case and refer the following question said to be of law arising out of the appellate decision of the Tribunal for the opinion of the court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the declaration filed by the minor daughter of an erstwhile partner of the assessee-firm ruled out the possibility of any fraud, gross or wilful neglect and the levy of penalty was unwarranted and whether the deletion of penalty was legal and justified in the facts and circumstances of the case ?"

(2.)THE assessee is a registered firm. THE year of assessment is 1964-65. THE Inspecting Assistant Commissioner imposed penalty of Rs. 12,000 under Section 271(1)(c) of the Act on the basis that Rs. 20,000 claimed by the assessee to be loans from a particular source constituted income from undisclosed sources and the assessee, therefore, was liable to be penalised. THE Appellate Tribunal, in appeal against the levy of penalty, held:
".....THE appeal of the assessee against the assessment had been disposed of by us by our order dated July 7, 1974, and we have confirmed the addition of the cash credits but some relief has been granted in respect of the income from the business. Even after our order, the difference between the income returned and the income assessed would be such as to attract the Explanation to Section 271(1)(c). In considering whether the assessee has discharged the onus cast by the Explanation, we have to consider the case of the assessee that the amount belonged to the daughter of the erstwhile partner and that a disclosure petition had been filed which has not been rejected. Even though we have held, following the decision of the Gujarat High Court in the case of Manilal Gafoorbhai Shah [1974] 95 ITR 624 (Guj), that the acceptance of a disclosure petition does not imply that the money belonged to the declarant, this evidence is, in our view, sufficient to support the case of the assessee that there was a bona fide claim that the money belonged to some one else and not to the assessee. In our opinion, therefore, that evidence rules out the possibility of any fraud or gross or wilful neglect. We are then referred back to the main provision of Section 271(1)(c) under which it is to be proved that the amount added back was the income of the assessee. Apart from the allegation that the creditor was an erstwhile partner of the assessee and that his daughter had no sources of income, there is no direct evidence to show that the amount added back was the income of the assessee. THE fact that it was deemed to be the income of the assessee by reason of Section 68 is irrelevant for the purpose of imposition of penalty as held by the Kerala High Court in Hajee K. Assainar v. Commissioner of Income-tax [1971] 81 ITR 423 (Ker) ...."

On this basis the imposition of penalty was cancelled.

The Tribunal, when moved to make a reference, came to hold that no question of law arose and, in making the appellate decision, the Tribunal had not committed any error of law. A copy of the disclosure petition has now been made available to us wherein it has been clearly indicated that the declarant "advanced Rs. 10,000 on January 14, 1963, and again Rs. 10,000 on or about January 28, 1963, to M/s. Harbanslal Sodesh Kumar (assessee) as interest bearing loan." The declaration is dated November 12, 1975.

The Income-tax Officer, while dealing with these transactions, found that the asscssee's accounts had been credited with Rs. 10,000 on January. 16, 1963, and with two amounts of Rs. 5,000 on 30th January, 1963. The Tribunal has as a fact found that the declaration furnished supporting material for the stand that the amount had come from the source of the declarant. It is true that at the assessment stage this explanation has not been accepted and there is force in the contention of learned standing counsel that the order of assessment is a piece of evidence while dealing with the penalty matter. We are, however, not in a position to agree with learned standing counsel that the Tribunal can be found fault with for having relied upon the facts stated in the declaration for absolving, the assessee from liability of penalty under Section 271(1)(c) of the Act. Material aspects have been taken into consideration and the law has been kept in view and the conclusion on a question of fact has been reached. Possibly, another forum of fact may have taken a different view, but it is settled beyond doubt now that such a position does not give rise to a question of law. We, accordingly, reject the application, but make no direction for costs.

Das, J.

I agree.