Sabyasachi Mukharji, C.J.I -
(1.)-This is an appeal by special leave from the judgment and order of the Madras High Court dated 9th March, 1977. The appeal involves the assessment of income-tax under the Income-tax Act, 1961 (hereinafter referred to as 'the Act') for the assessment year 1966-67. The assessee is an individual who carried on business in distribution of films for the assessment year 1966-67. The assessee filed a return of income on 12th July, 1969 declaring "No loss". Subsequently, the assessee filed a revised return on 4th January, 1969 declaring a net loss of Rs. 9,490/- The Income-tax Officer called for wealth statements from the assessee. The wealth statements did not reveal that the assessee had invested any amount in the plot of land in T. Nagar. However, a raid made in the premises of E. V. Saroja and K. R. Sadayappan revealed the information that the assessee along with Smt. P. S. S. Ekammai Achi and A. L. M. Perianna Chettiar had purchased a plot of land in T. Nagar on 13-4-1965 from Smt. K. V. Saroja. The plot was purchased in the name of the, assessee's son Sri Ramkrishnan.
(2.)In the assessment, it was stated that the total consideration was Rs. 80,000/- out of which Rs.25,000/- was the payment in respect of the portion purchased in the name of Sri Ramkrishnan. The examination of all the materials including the document revealed that the total consideration was Rupees 1,40,000/-. The on-money payment made by the assessee on behalf of his son was Rs. 18,750/- for which the assessee could not adduce evidence to prove the nature and source of investment. This sum of Rs. 18750 was treated by the Income-tax Officer as the undisclosed income of the assessee and he initiated penalty proceedings under S. 27 1(1) (c) of the Act for concealment of income and referred the case to the I.A.C. for disposal as the minimum penalty leviable exceeded Rs. 1,000/-. The I.A.C. imposed a penalty of Rs. 18,750/- being equal to the income concealed holding that the assessee had not discharged the burden cast upon him by the Explanation to S. 27 1 (1)(c) of the Act in not adducing any evidence that the plot was purchased by the assessee's son out of his own funds and against the assessee's own statement recorded on 9-10-1972 that the on money payment was made by him. The assessee filed an appeal to the Tribunal and contended that in case of rejection of assessee's explanation for the source, the addition could not be held to be the concealed income of the assessee, and relied on certain principles laid down by the Courts. The Tribunal allowed the appeal. It is necessary to refer to relevant portions of the Tribunal's order in respect of which certain contentions were urged before us. The Tribunal in its order observed, inter alia, as follows:-
"We have considered the rival submissions. At first we were impressed by the argument of the Departmental Representative that it is a fit case for the levy of penalty. However, when we find that the assessee had at no time 91 an any false or different particulars about this property in his return of income or at any time during the assessment proceedings, there cannot be any question of his having filed any incorrect particulars and more so of the income. The Departmental Representative was unable to point out any occasion when the assessee has stated before the Income-tax Officer during the assessment proceedings that he had purchased the property only for Rs. 80,000/ -. On the other hand, when he was asked to state the consideration of the property during the examination, he accepted that there were two agreements but the real consideration was Rs. 1,40,000 / -. That being so, we are unable to accept that the assessee had been wilfully negligent or fraudulent in this regard. Then the question arises as to any concealment in the addition made by the Departmental as income from undisclosed sources. Here, the assessee's case (supra) was that he had prepared a sort of cash statements to show that there was some cash available for this purpose. The Department's case (supra) was that this was only a cash statement and this statement suffered from certain defects, viz., the absence of drawings for personal expenses and even the so-called surplus followed by utilisation for other expenses. No doubt, the Income-tax Officer may be 'justified to say that not only the explanation is not convincing but false, because there was no cash available to the assessee for payment towards the extra money paid. However, rejection of explanation even on the ground of falsity will not mean that the addition represented the assessee's income and more so of the concealed income of the assessee. In fact, the assessee has not accepted the addition before the Income-tax Officer though he has not gone on appeal for reasons best known to him. Whatever it is, there was no acceptance that the addition represented the concealed income. Having regard to all these, we are of the view that the assessee's case (supra) falls within the ratio of the decisions in C.I.T. v. Anwar Ali, 76 ITR 696 and CI.I.T. v. Khoday Ramarao and Sons, 83 ITR 369. In view of what we have expressed above, we find no reasons to sustain the penalty. Accordingly, we cancel the penalty."
(3.)The penalty was set aside. Aggrieved by the said order the revenue moved the Tribunal under S. 256(1) of the Act to refer the following questions of law to the High Court:
"(i) Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in cancelling the penalty levied u/ S. 271(i)(c) in the assessee's case (supra)
(ii) Whether having regard to the provisions of explanation to S. 27 1 (i)(c) the Appellate Tribunal's cancellation of penalty is sustainable in law and on the materials on record
(iii) Whether the Appellate Tribunal's view that the addition of Rs. 18,750/- did not represent the concealed income of the assessee is based on valid and relevant consideration and is reasonable view to take on the facts of this case -