Pathak, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question for the opinion of this court: " Whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 10,000 under Section 28(1)(c) had been validly cancelled ?"
(2.) IN assessment proceeding for the year 1954-55 the INcome-tax Officer discovered cash credits amounting to Rs. 1,13,450 in the account books of the assessee. The assessee was able to explain the nature and source of a total sum of Rs. 51,500, but for the balance his explanation was not accepted by the INcome-tax Officer. Subsequently, the assessee surrendered the balance of Rs. 61,915 for taxation in a revised return filed by it. When the INcome-tax Officer took up the assessment proceedings again he found still further cash credits over and above those which he had already discovered. The total of the further cash credits now detected by him amounted to Rs. 9,250. The assessee attempted to explain the nature and source of these cash credits, but his explanation was found unsatisfactory and the INcome-tax Officer added a further sum of Rs. 9,250 to the assessee's income. The assessee proceeded in appeal to the Appellate Assistant Commissioner of INcome-tax. The Appellate Assistant Commissioner, in turn, detected further cash credits in the assessee's account books and after issuing a notice of enhancement he included a sum of Rs. 46,601 as income from undisclosed sources. IN the order-sheet of the quantum appeal dated August 12, 1958, he recorded the following order: " Orders passed. INform. Penalty notice already issued by the INcome-tax Officer." It appears that the Income-tax Officer had already issued a notice under Section 28 in respect of the cash credits discovered by him during the assessment proceedings, and on January 31, 1964, he made an order imposing a penalty of Rs. 10,000 under Section 28(1)(c), Indian Income-tax Act, 1922, taking into account not only the income found by him to have been concealed by the assessee but also the income discovered subsequently by the Appellate Assistant Commissioner in appeal. The assessee appealed against the penalty order and the appeal was dismissed by the Appellate Assistant Commissioner. Thereafter, upon second appeal, the Income-tax Appellate Tribunal held that the Income-tax Officer did not enjoy any jurisdiction to impose a penalty in respect of the amount discovered by the Appellate Assistant Commissioner. It observed further that as the Income-tax Officer had taken into account the income discovered not only during the assessment proceeding before him but also during the appellate proceeding before the Appellate Assistant Commissioner for the purpose of levying the penalty, the entire penalty order was liable to be quashed. The Tribunal was of the view that it was not possible to treat the penalty order as severable. At the instance of the Commissioner of Income-tax the Tribunal has now referred this case.
(3.) AN application was made on behalf of the assessee before this court under Section 66(4) of the Act, and we have by our order of date dismissed that application. The only question before us, therefore, is whether having regard to the grounds upon which the Tribunal proceeded it was justified in law in cancelling the levy of penalty imposed by the Income-tax Officer.;