H.N.Seth, J. - (1.) The assessee, M/s. D. D. Lamba and Co., is a registered firm carrying on business as a building contractor under the MES. For each of the assessment years 1965-66, 1966-67 and 1968-69, the assessee returned an income of Rs. 37,630, Rs. 53,772 and Rs. 24,943, respectively. At the time of assessment the ITO, who examined the books of the assessee, found that the net receipts shown in assessee's books were supported by certificate of payments from the department concerned but no details in respect of cost of materials issued to the assessee by the department and the reduction made on account of security furnished by the assessee had been furnished. Accordingly, the ITO worked out the gross receipts by applying a formula of 20/13 to the receipts disclosed by the assessee. As in the opinion of the ITO the accounts had not been kept properly and the net profit disclosed by the assessee appeared to be low, he rejected the assessee's books of account and worked out its income by applying the net profit rate of 11 % on the gross receipts estimated for each of the three years. In the result, the ITO assessed the income of the assessee for each of the years 1965-66, 1966-67 and 1968-69 at Rs. 69,688, Rs. 1,63,471 and Rs. 33,418, respectively. The assessee filed appeals in respect of the years 1965-66 and 1966-67 and the Income-tax Appellate Tribunal, while upholding the rejection of the accounts of the assessee, reduced the gross receipts determined by the ITO to a certain extent and after applying the net rate of 10% for calculating the profit of the assessee, the Tribunal determined the income of the assessee for the assessment years 1965-66 and 1966-67 at Rs. 55,328 and Rs. 1,15,920, respectively. As the returned income for each of the assessment years fell short of 80% of the assessed income, the ITO was of opinion that penalty under the newly added Explanation to Section 271(l)(c) of the I.T. Act was attracted in these cases. However, as the minimum penalty imposable under that section exceeded Rs. 1,000/ in each of the three assessment years, the cases were referred by the ITO to the IAC under Section 274(2) of the Act. In reply to the notice issued by the IAC, the assessee submitted that the Explanation to Section 271(1)(c) inserted by the Finance Act of 1964 with effect from 1st June, 1964, was not applicable in its case and even if it was so applicable, the onus, after the introduction of that Explanation, was on the revenue to prove that there had been concealment on the part of the assessee. The IAC repelled the submission made on behalf of the assessee and eventually imposed a penalty of Rs. 5,000, Rs. 13,000, and Rs. 9,000, respectively, for each of the assessment years mentioned above. The assessee then took up the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal made the following observations: "We have carefully considered the submissions made by the parties and we are of the opinion that the contentions of the revenue are not well founded. It is true that the Explanation has created a legal fiction of deemed concealment in those cases where the returned income fell short of 80% of the assessed income, but in our opinion the assessee has discharged the negative burden by showing that the income returned was on the basis of books kept in the regular course of business and the difference between the assessed income and the returned income in excess of 20% is dueonly to the addition of extra profit in the trading account on the basis of estimate. In a very recent case of CIT v. Sankarsons and Co. [1972] 85 ITR 627, the Kerala High Court has held that penalty under the Explanation to section 271(1)(c) is not exigible when the difference between the returned income and the assessed income in excess of 20% is due to addition of extra profit in the trading account on the basis of estimate. Respectfully following the decision of the Kerala High Court in the case of Sankarsons and Co. [1972] 85 ITR 627 referred to above, we hold that penalty under the Explanation to section 271(1)(c) is not attracted in any of the three years under appeal. Penalties are cancelled." and allowed the appeals filed by the assessee.
(2.) At the instance of the revenue this court called upon the Tribunal to state the cases and to refer the following questions for the various assessment years for its opinion. Assessment year 1965-66: "(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in cancelling the penalty of Rs. 5,000 imposed upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961, read with its Explanation ? (2) Whether there is material on the record for the finding recorded by the Tribunal that in this case, the onus that lav on the assessee in view of the Explanation to section 271(1)(c) of the Income-tax Act, 1961, had been discharged ?" Assessment year 1966-67: "(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in cancelling the penalty of Rs. 13,000 imposed upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961, read with its Explanation ?" Assessment year 1968-69: "(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in cancelling the penalty of Rs. 9,000 imposed upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961, read with its Explanation ?" "(2) Whether there is material on the record for the finding recorded by the Tribunal that in this case the onus that lay on the assessee in view of the Explanation to section 271(1)(c) of the Income-tax Act, 1961, had been discharged ?"
(3.) The observation made by the Tribunal indicates that in its opinion in cases where the Explanation added to Section 271(1)(c) is attracted, no penalty under that section is attracted if the difference between the assessed income and the returned income in excess of 20% is due only to the addition of the extra profit in the trading account on the basis of an estimate.;